Regulation Z changes - 10-01-09

okay, list #1 to sticky

Per request, this is the place to discuss and ask questions regarding the Reg Z changes to be implemented 10/1/09.

Great idea to date these!

In addition to FDIC guidelines, have other regulatory agencies indicated that a balloon payment should not be done on a term of 7 years or less?

I know there has been a lot of discussion on this – does it go into effect on 10.1.09?

Thanks!

To the best of my knowledge, only the FDIC has indicated a balloon of < 7 years is not realistic anymore. Yes this goes into affect 10/1/09 and only if it's a HPML.

One of consultants contacted the author of the article (in the 2nd quarter FDIC Supervisory Insights). She indicated this was "kind of the FDIC's stance" and that the FRB had not been consulted on this. When we questioned what she meant, she skated around the issue - basically saying they were regretting putting this in writing because they weren't sure they really meant it. Wow!

gotta love that!

In the FDIC teleconference this morning from the Dallas region, they basically reiterated that a balloon of 7 years is not realistic.

A creditor is presumed compliant if all 3 of the following requirements are satsified:

-verifications of repayment ability

-Determies repay ability using the largest principal and interest payment scheduled in the first 7 years following consummation and taking into account current obligations and mortgage related obligations (property tax, insurance)

-Takes into account at least one of the following:
-DTI
-Consumers available income after paying debt
(residual income)

Is there anywany to test our current loans to determine if they were done after 10-1 the would be high priced. We have a number of 3 year loans that had rate spreads on HMDA that were not NA. I would like to get an idea if these loans would also end up being high cost under the new rules.

But I just ran the numbers and a $50,000 loan with a 5 yr balloon has a final pymt of $29,322 vs a final pymt of $18,853 for a 7 yr balloon. Realistically who could afford either of these?


If we do the following, haven't we basically created an ARM loan?
34(a)(4)(iv) Exclusions from the presumption of compliance.


2. Renewable balloon loan. If a creditor is unconditionally obligated to renew a balloon-payment loan at the consumer's option (or is obligated to renew subject to conditions within the consumer's control), the full term resulting from such renewal is the relevant term for purposes of the exclusion of certain balloon-payment loans. See comment 17(c)(1)--11 for a discussion of conditions within a consumer's control in connection with renewable balloon-payment loans.

So..realistically, how do you accomplish that if the loan matures in 3 or 5 years and the balloon becomes the highest payment in the payment schedule as a result??

The way I take it is if you do a 3 or 5 year balloon and it is HPML you have to use the final balloon payment. There is no way anyone will be able to afford that.

Have a 7 year balloon you would use the payment for 7 years to figure out the ability to repay. For us, not being able to do a 3 or 5 year balloon is going to hurt as that is pretty much our market. I am waiting on management to decide what we are going to do if we will develop a 7 year balloon or just do ARMs.

Let's stop the train a minute. I'm going to quote from Reg Z and the Federal Register on this topic:

"Section 226.34(a)(4) governs the process of extending credit; it is not intended to dictate which types of credit or credit terms are permissible and which are not. The rule does not prohibit potentially riskier types of loans such as loans with balloon payments, loans with interest-only payments, or ARMs with discounted initial rates. With proper underwriting such products may be appropriate for certain borrowers in the subprime market. The regulation merely prohibits a creditor from extending such products or any other higher-priced mortgage loans without adequately evaluating repayment ability".

On page 44549 of the FR, it states the following:
"Furthermore, nothing in the regulation prohibits, or creates a presumption against, loan products that are designed to serve consumers who legitimately expect to sell or refinance sooner than seven years".

These two statements clearly show balloon loans that are less than seven years are acceptable. What say you all now?

What payment do you use...common sense tells me you use the payment during the 3 or 5-yr amort period...but the FDIC guidance through a hitch in my gitalong on that...

and, I guess you would lose the "presumption of compliance" as well?

It seems there is some contradiction in there somewhere.

No argument from me. There's just no "presumption of compliance". It's just that in my neck of the woods, not too many can afford the huge balloon payment of a balloon of less than 7 years. So realistically, we shouldn't be doing these anymore. That's what the Reg is saying or implying in my opinion.

Joe Schmo is set up on a 5 year balloon with monthly payments based on a 20 year am. If we have to use the highest payment within the first 7 years, then it will show he can't afford it. Joe works as a meter reader for the city and makes $40K a year. Based on the amortized payments, he can afford it over the full course of amortization-but because the amended regs call for looking at the highest P&I in the first 7 years(the balloon payment due in year 5)---he is deemed unable to pay.

At least that what it looks like to me.

That what it implies to me as well. We are an FDIC supervised bank so I am going off the Supervisory Insight issued by them.

I have never really understood why you would put Joe Plumber into a balloon loan to begin with.... You get to the end of 3 or 5 years and rates have gone up 4 or 5% and they can't afford to refinance - the bank owns a house and hasn't done the borrower diddly good. These balloon notes were originally designed for the most sophisticated borrowers that expected and had the means to pay the balloon. I see some banks that put people in these short term balloon loans because they would not qualify for A-paper and telling them - don't worry - you can refinance at a later date. This is what got us to where we are today.

I am not sure why we do them, I have never received an answer for that. I think it is because we are a CDFI and we want to help our customers that can't get a loan that would be sold in the secondary market. While our rates are a little higher they are no where near what they would pay if they were dealing with the preditory lenders.

"Predatory" is more than just rates. It also involves putting people in loans that in 3 to 5 years that they most likely cannot afford to payoff if the rate market goes against them. I think if they cannot qualify for a secondary 30 year fixed loan, placing them in a 3-5 year balloon is just as predatory of an action. Other people may disagree, but if the Fed doesn't balance the current economic market correctly, the printing of unlimited amounts of money is going to drive inflation and rates are going to skyrocket when that happens. How will a 3-5 balloon help these people that can't get a conventional loan now???

OK - I have really digressed from the original issue, but if the person can't afford the balloon, I think the bank loses the "presumption of compliance" for the above reasons.

Hey, you won't get an arguement from me. I am just telling you what I am up against here. Luckily we do very few of these type of loans. Some have been on our books for years and every three years we renew them. That is a story all in itself. They do a new note but don't show the previous as paid off, just renewed. It is a strange world here.

I don't disagree the bank loses the presumption of compliance. In fact, I agree. But what does this really mean? Even if you fully comply with the presumption of compliance requirements, you can still get sued. The borrowers can claim the lender disregarded repayment ability despite following the requirements of .34(a)(4). So I can see a borrower (who qualified as the time of application who has since lost their job) who is being foreclosed on stating "the bank didn't properly qualify me". The bank will go to court whether they followed these rules or not.

So my question is "what's to be gained or lost" by making loans with balloons of 3/5 years?

IMHO - there is absolutely nothing to be gained. Why run the risk of being sued in 3-5 years if they can't afford to refinance?

I understand what you're saying, but do the chances of being sued increase if you do a 7 year balloon vs. a 5 year balloon?

Having been a CO in the late 70's and early 80's and watching Prime climb to around 21%, I must agree with Randy's opinions.

That being said, David also makes a valid "risk-based" case.

Until and IF we get firm regulatory guidance, I believe that each bank's Senior Management is going to have to make their own choice in this matter.

I'm am with David in trying to understand what benefit the presumption of compliance really gives you if the customer can still sue.

As far as figuring repayment ability on a 7-year balloon my understanding is that you don’t use the balloon payment. The commentary gives the following example 34(a)(4)(iii)(B)-1i
Balloon-payment loan; fixed interest rate. A loan in an amount of $100,000 with a fixed interest rate of 8.0 percent (no points) has a 7-year term but is amortized over 30 years. The monthly payment scheduled for 7 years is $733 with a balloon payment of remaining principal due at the end of 7 years. The creditor will retain the presumption of compliance if it assesses repayment ability based on the payment of $733.

In the supplementary materials it says “If the term is at least seven years, the creditor that underwrites the loan based on the regular payments (not the balloon payment) may retain the presumption of compliance.”

See, now this is what I was wanting to hear/read! This is how I feel. As far as do the chances of a law suit increase for a 7 vs 5, I wondered if that was meant to be decrease, but not sure.

I have a "gut" feeling they are perhaps using the old standard (which may still be a current statistic) of the average length of stay in a home being 5 - 7 years...therefore, there is a good chance someone will sell and move on prior to the balloon coming due.

I understand why community banks make short term loans with balloons and it all has to do with interest rate spread. They are just not in the business to be able to do long-term fixed rate loans. On the other hand, they want to serve their customer, so this is the alternative.

I think the attitude of "you just lose the presumption of compliance" issue is HUGE and being taken too lightly by many.

A borrower can sue over anything. However, if the bank has complied with the "presumption of compliance", what attorney is going to take the case on a contingency? If the borrower can't afford to make their house payment, they are not going to be able to afford an attorney. The real issue is with the regulators. The regulation makes verifying repayment ability an affirmative requirement, rather than making failure to verify a presumption of a violation. If you can't verify the repayment ability on loans with terms of less than 7 years, you have a direct violation of Regulation Z - period.

Interest rate risk managment is one reason banks are doing balloon mortgages. Some small community banks are making 3-5 year balloon mortgages because they don't offer variable rate loans and don't sell any loans in the secondary market, and at the same time don't want to keep fixed rate loans on the books for 20-30 years. I do agree though that these loans are not necessarily a good idea - given possible large increases in interest rates. Just my 2 cents.

We used to offer escrow, we merged with another FI and now we do not offer escrow. Can we tell customers we do not offer escrow on loans and not do any High priced mortgages? We did a survey of our loans and at this time do not have any HPM. Is there any legal way of getting out of doing HPM? Also if we have a loan with PMI (I am guess it would be a HPM)? Do we have to escrow the PMI if it isn't a HPM?

You can try to not to HPML, but it's going to be difficult. The index is so low, I don't know how any bank is going to avoid HPMLs on 1st lien loans. Therefore, if you do have a HPML, you must escrow loans closed 4/1/10 or after.

You don't have to escrow PMI, but I don't know how you would collect the money without escrowing.

Is there any legal way of getting out of doing HPM?

Sure - just set your pricing to never pull the trigger.

Do we have to escrow the PMI if it isn't a HPM?

There are no other regulations that "require" an escrow.

Thank you, both of you basically enforced what I thought, but my lenders are acting up. (what else is new)! So I thought a little backing might work shot of hitting them over the head with the reg changes again!

Bville,
Please provide a link to your stmt below:

In the supplementary materials it says “If the term is at least seven years, the creditor that underwrites the loan based on the regular payments (not the balloon payment) may retain the presumption of compliance.”

I had this questions posed to me the other day, so I thought this may be helpful for others too.
[size:8pt]
Edit Reason. Grabbed the wrong reply by David.[/size]

Page 44549 of the Federal Register / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Rules and Regulations 12 CFR Part 226
Truth in Lending; Final Rule

Under § 226.34(a)(4)(iv), no
presumption of compliance is available
for a balloon-payment loan with a term
shorter than seven years. If the term is
at least seven years, the creditor that
underwrites the loan based on the
regular payments (not the balloon
payment) may retain the presumption of
compliance.

Thanks Dan.

Thanks Dan. I've been away from my desk for a few hours and wasn't keeping up with the thread.

Has anyone spelled out somewhere exactly what has changed for HOEPA? I know the prepayment penalty rules have changed and the rules for verifying repayment ability are enhanced - what else. I get my mind so into HPML I forget about HOEPA.

Also I'd like to make a chart comparing HOEPA to HPML - has anyone made one or seen one somewhere?

See pages 34-35.
FDIC Supervisory Insights

I find it interesting, in scanning that comparison, that HPML requires escrow, but HCML does not? Interesting.

Am I correct that we use the calculator here?

http://www.ffiec.gov/ratespread/newcalc.aspx

Yes

If we do 1, 3, & 5 year balloon loans where the APR does not trigger HPML by being no greater than 1.50% over APOR rate. Does that then exempt these loans from from the other HPML requirements?

Or just the fact that they are balloon loans less than 7 years they are automatically HPML's regardless of the rate?

If the APR doesn't make the loan HPMLs, the rest of the HPML requirements will not apply.

I think I need a quick lesson on what a cooperative is. 226.35(b)(3)(ii) tells me I don't need an escrow for a HPML secured by shares of a cooperative. The commentary says an escrow is required if HPML is secured by a lien on a cooperative. I'm assuming you can either own a piece of a building with your name on the title or an entity owns a building and you can own a percentage of the entity? Sorry if this seems a bit remedial, but I just realized I know even less than I realized about cooperatives.

David,
From part of your reply on 8-27:
These two statements clearly show balloon loans that are less than seven years are acceptable. What say you all now?
I say "yeah". But I'm still confused as to whether we have to use the balloon pymt. I'm considering documenting repayment ability using the regular payment in the debt to income that we establish. (I think early-on you recommended this.) Do you think this will work?

RL

Where do bank's earnings come from? I would contend a very small percentage comes from generating loans for sale into the fixed rate market. The bulk comes from loans kept in the bank's loan portfolio. If the bank requires Joe Plumber to have substantial equity in the property 20% or greater (to basically share in the risk of the bank granting the loan) I believe a balloon loan could be a prudent product for Joe Plumber and a Prudent Risk for the bank to take with their depositor's funds.

I tried posting this under one of the other Reg Z chains, but no reponse. When it comes to the timeliness of posting payments, what are reasonable requirements? That is so subjective. Can we notify each borrower at closing "in writing" that payments made with coupon to the p.o. box listed on their coupon, will be posted the same day. Any received after 5:00 in person or on Saturday, will be posted the next business day. Can this be accomplished by a mailer to our existing customers, and add a disclosure at closing for new customers going forward? It seems like I have read that a lobby sign is not considered "in writing".

Please give people a 'reasonable' chance to reply before you double post. David answered your question in the other thread.

I'm not sure how much a downpayment has to do with being able to afford the new payment when it comes time to refinance in a rising interest rate environment. They still potentially lose their house and possible all the equity they dumped into it.

Do we use the same rate spread calculator for HOEPA loans and the higher priced mortgage loans?

No. HOEPA spreads are still based on the Treasury Constant Maturities where HPMLs are based on the AOPR.

Taken from the rate spread calculator located at:

http://www.ffiec.gov/ratespread/newcalc.aspx

NOTE: Do not use the rate spread calculator to calculate the HOEPA status; they are two different fields which require two different calculations. See Help for more details.

OK- I want to make sure I understand this correctly.

If our loan is considered a HPML...On a 3 or 5 year balloon we need to take into consideration all payments including the balloon when calculating the ability to repay the loan. If we did a 5 year ARM we would need to take the highest rate in the first seven years intial rate for five years and then the yearly cap to figure out the highest payment and use that payment for the entire 7 years. (For example, five year ARM now 5.99, year 6 could jump 2.5 and year seven jump another 2.5. So we need to use 10.99 when figuring the payment for the first seven years.)

akhcompliance

if indeed your loan is a HPML, your statements are correct as to the balloon and the ARM. If it is not a HPML, you are safe and these criteria do not apply, other than your lending policy to suitability as well as safety and soundness.

Thanks for the information.

The ARM payment only has to be based on the fully indexed rate at the time of consummation. From the Commentary to 226.34(a)(4)(iii)(B):

iv. Variable-rate loan with discount for five years. A loan in an amount of $100,000 has a 30-year term. The loan agreement provides for a fixed interest rate of 7.0 percent for an initial period of 5 years. Accordingly, the payment scheduled for the first 5 years is $665. The agreement provides that, after 5 years, the interest rate will adjust each year based on a specified index and margin. As of consummation, the sum of the index value and margin (the fully-indexed rate) is 8.0 percent. Accordingly, the payment scheduled for the remaining 25 years is $727. The creditor will retain the presumption of compliance if it assesses repayment ability based on the payment of $727.

can you send me the link? My bookmarks got deleted somehow....

Click on Read A Reg at the top of the thread.

For some reason I am just not getting the grasp on this 7 year payment. I understand for balloons.

If we have a 5/1 year ARM. I know the payment for the first five years. On our TIL gives the payment for 60 months and then will give anotehr payment stream like 300 payments of XXX beginning XX/XX/XX (5 years from first payment). Would we use the highest payment of the two payment streams. The more I read, the more I get confused

What could the P&I be at the onset of year 7. If that is higher than the first 5years and the 6th year, then use that one.

You have a discounted rate which is what is illustrated in my above cite. If you use the payment shown for the fully indexed rate it would meet the requirement for the presumption of compliance. Let's say the fully indexed rate won't be reached until the second rate change due to a cap. Your stream will look similar to:

60 X $100
12 X $125
288 X $175

You would use the $175 for repayment ability.

I think our loan processing software will calc. for us it looks like. We just need the update. We use ARTA, does anyone else?

Okay- I have what I think is an easy question- I just can't get the answer out of my head.

The changes to servicing and misrepresentation of dwelling value apply to all loans that are subject to Reg Z and the principal dwelling right? Or would this include collateral of a second home like MIDA did?

Thanks-

MarieR - The MDIA rule prohibiting the coercion of appraisers and misstatements of value is directed at loans secured by the consumer's principal dwelling--HOWEVER-- the FDIC in particular has made it clear that they may cite any loan where this appears to have happened based on the FTC's Section 5.

They are most certainly on the look out for issues with the appraisal process on any loan.

Would this be an HPML? We have a loan for a mobile home, no land, we have a first lien but it is priced and set up on our system as a consumer installment loan but is HMDA reportable. If the rate exceeds the APOR by 1.5% will we now be required to document ability to pay, verify income with 3rd party documentation and escrow for the hazard insurance?

Thanks for any help with this one, I am having trouble getting a good understanding on this type of loan.

Beth: Yes, this loan could be subject to HPML requirements. Land is not a requirement. If this is their primary dwelling, and the APR exceeds the APOR by 1.5/3.5%, it is a HPML.

Version 8.0 of our Real Estate Matrix (now available at our website) illustrates applicability of the HPMLs. You can find it here:
http://www.bankerscompliance.com/compliance-resources/free-downloads.htm

I have a question about the FFIEC Rate Spread Calculator.

I have a covered loan that has a preferred employee rate for as long as the employment lasts. If they leave the bank, the rate will adjust upward. Of course, they can leave the bank the day after receiving the loan. The instructions state that if the loan term (the period until the first scheduled rate reset)is less than 6 months to use a "1".

In the above situation, in the calculator, under Loan term, would I choose variable term and then use 1?

Thanks.

I would treat this loan as a fixed rate loan for the rate spread calculation. The rate has no schedule adjustments. It only adjusts if a certain event takes place.

I agree.

I have a question about record retention for the information you obtained to verify their repayment ability. We will obtain a tax return from customer's at the time a loan is made to determine income (we are an agricultural community). In the past, we have only kept the last two years returns in the credit file and destroyed old ones. If we make a HPML, I believe we will now be required to keep that initial tax return obtained to verify income for two years after that real estate loan pays off. This could be a nightmare to keep track of these items and especially when they come in and get new loans all of the time. Does anyone have any thoughts about the record retention for the items you obtain to determine repayment ability????

Does a HPML include purchase, refi and home equity loans secured by the borrowers principal dwelling?

Yes.

Thanks David

I went over this today with the main retail lender and was asked if there is anything that prevents us from changing the rate once we determine it would be a HPML? My first thought is our loan policy, but she said she would just get an exception to policy.

So other than possible discrimination or disparate impact, what other reasons can I give for why we shouldn't just change the rate? We are trying to avoid escrows because we are too small to handle them.

Quick question regarding Crediting of Payments:

Comment for 226.36(c)(2)(3) states in the implied guidelines that a payment can be made any time during normal business hours.

Our Drive Up is open late most nights, and the tellers accept many payments. These would, under today's practices, be credited on the following business day as part of normal posting.

Am I correct in assuming that, unless we specifically state a cutoff time in writing, these payments received after hours should be pulled out so they can be manually backdated to the date of receipt?

How are the rest of you approaching this? And how about payments left in the Night Drop?

Section 226.35(a) (3) Notwithstanding paragraph (a)(1) of this section, the term ``higher-priced mortgage loan'' does not include a transaction to finance the initial construction of a dwelling, a temporary or ``bridge'' loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to Sec. 226.33, or a home equity line of credit subject to Sec. 226.5b.

SkiDoo, we are in the same boat. Too small and don't make enough consumer loans to get into escrowing. Any guru have an opinion?

Ski & Plum,
The FDIC article made the recommendation that to make a Balloon with a term of less than 7 years - lower the rate to keep the APR below a HPML threshold.
SO - using the same logic to avoid an HPML for escrows, would seem to be o.k.; given the potential disparate impact that you already mentioned.
BUT - IMO, the big question then becomes . . . Is the loan profitable, given you have to lower the rate to X%.

I have 2 questions I need to ask.

1..We do Adjustable Rate Loans based on rate change of Prime + 1 annually or every 3 yrs. But, we have a floor rate of 6% and a ceiling rate of 21%. To base repayment ability I will need to figure that on the fully indexed rate at time of loan which currently would be 4.25% or the floor rate which is 6%, is this correct??

2..How do we handle the balloon notes we have that will mature after the October 2009 changes are into effect. Some of these borrowers may not be able to acceptable document their income as required by the new Reg Z?? Will we be able to renew these and continue them as balloon notes?? Without having to document the repayment ability?????

SkiDoo's option is the only one available - don't cross the threshold.

1. Your highest scheduled payment at the time of consummation will be based on 6% (the floor). That is the payment you will use for repayment ability.


2. You either modify the terms before the loan matures or you follow the new guidelines which means you may have to refinance them to 7 year balloons or give up the presumption of compliance.

I have looked unsuccessfully to locate the Federal Register in relation to the Reg. Z Higher Priced Mortgage Loans. I need a copy of the Federal Register (not the BOL listing). I need this copy to give to management for their reading entertainment. If someone could [b]pleeeease[/b] direct me to the correct place, I would greatly appreciate it.

If this is covered in a thread, please point me in that direction. What are the requirements for considering an obligation that has only a few months until maturity in the repayment capacity? I have not seen mention of whether we have to include those or not.

Press release
http://www.federalreserve.gov/newsevents/press/bcreg/20080714a.htm

Federal Register Notice
http://edocket.access.gpo.gov/2008/pdf/E8-16500.pdf

StevenD

Thank You SOOOOOOO much!

The ABA (in the ABA Works material on Mortgage Lending and HOEPA) makes refernce to an HPML borrower being able to assert a violation of the underwriting requirement as a counterclaim for all finance charges from closing until foreclosure action.Can one of the gurus explain how a consumer could do this or refer me to the part of Reg Z that allows the consumer to do so? I agree with another post that this could be a huge issue - and one that won't hit us for a few years when one of the HPML loans goes into foreclosure.

Talked with loan ops today about our jumbo pricing. Our bank does not escrow and since there is no APOR consideration for jumbos, our pricing puts us in an HPML category and thus requiring escrows we don't want to do. I have read where we can't take closed end mortgage and structure as open end LOC but could we take the jumbo and make it into a first lien loan and an equity loan to prevent exceeding APOR pricinig. I have skimmed the regs once again and haven't seen anything that would prevent this or thwart our attempts to keep the rates out of HPML territory. Of course we portfolio everything. Thoughts from anyone on the acceptability of this? thanks!

I'm having a Friday moment...why would it matter when the terms were modified? Is it the whole renew / refinance thing? We've been going round and round with this...

The ABA has an audio recording of part of their 8/19 Mortgage Markets Committee conference call where an attorney discussed liability issues regarding the new TILA and RESPA changes. They also have a link to the attorney's PowerPoint presentation. I believe he said that a consumer can be entitled to "all finance charges" under section 130(a)(4) of TILA for violations of section 129 ("materiality" requirement). He said that a consumer could be entitled to all interest, all points, all origination fees, etc. He said that this is worse than rescission because they don't have to pay back the principal on the loan.
http://www.aba.com/Solutions/Mortgage_Committee.htm

You need to have access to the ABA's members only section in order to access the audio file and the PPT.

Previous post

FWIW Zaibatsu is an attorney, but as he said this opinion is unofficial.

Perfect. Thank you very much.

On comparing the initial APR of the to the APOR, when we originate an ARM with a discounted initial rate the APR is lower than the actual interest rate. This is due to the calculation based on the loan repricing at a lower rate (current prime plus 1 or 2 points).

If the initial APR based on the 20 or 30 year term is less than the APOR, is the loan not considered an HPML?

or are we supposed to calculate an APR on the first payment stream only to compare to the APOR?

A loan only has one APR and that is what is compared to the APOR.

As Randy said - A loan only has 1 APR.
Use the APR on your Early TIL as your first determination of whether the loan will likely be a HPML
Go to The FFIEC Calculator and enter the info to get the Official Answer = let it compare to the appropriate APOR.

Once you continue the underwriting process, the date you lock the rate may be dirrerent and the Final APR may vary some - So use the calculator again with the Rate Lock Date and APR from the Final TIL.

New to this forum - not sure how to ask a question but here goes..

I thought I understood the HPML rules but now I am confused. What rate do I use to determine if my loan is a HPML? The APOR on the date the rate is locked or the PMMS as of the 15th of the month prior to the loan application date. OR are they two different calculations for two different purposes?

I would suggest that you compare the APR on the early TIL to determine whether or not you have the potential of a HPML. The final TIL should again be compared to make sure things have not changed. The APORs can be found here:

http://www.ffiec.gov/ratespread/newcalc.aspx

You use the "as of the date the transaction’s interest rate is set (or “locked”) before consummation."

Would splitting my jumbo loan which puts us in an HPML situation (we don't escrow and don't want to) into a first and a home equity loan where neither rate would be an HPML be a problem? I haven't seen anything in the regs or had anyone reply to my Friday question. Thanks so much.

I thought the 7 yr balloon restriction was for Sec 32 loans and not for HPML? At least that is the way the Supervisory Insights Summer 2009 reads to me. Sec 32 loans are not going away, right? We're just adding HPML.

I thought the 7 yr balloon restriction was for Sec 32 loans and not for HPML? At least that is the way the Supervisory Insights Summer 2009 reads to me. Sec 32 loans are not going away, right? We're just adding HPML.

Section 32 of Reg. Z (HOEPA) is still going to be there 10/1/09 but has some enhancements.

Section 35 of Reg. Z (HPML) is new as of 10/1/09.

The part of the Supervisory Insights that discussed the issue of loans that balloon less than 7 years, has to do with the new Section 35 higher priced mortgage loans. A quote from teh beginning of that section (emphasis added)...

With the changes I know there is guidance on how to get "presumption of compliance." In an article I read it states "Creditors are not required to meet the presumption of compliance test but doing so provides the bank some protection for both a compliance standpoint and legal risk?"

My question is what would the ramifications be if a credit did not meet the presumption of compliance?

I'm looking for some help on the jumbo loan pricing issue also - has anyone gotten any guidance on these? They tend to be priced a bit higher than other conventional loans.

There is no prohibition from splitting a large loan up into two transactions. What concerns do you have? However, if you are selling the first liens, you are basically assuming all of the transaction risk.

Presumption of compliance will (in theory) only come into play if challenged in court. If you choose not to comply with a specific requirement, as they are all affirmative requirements, you will be cited for regulatory violations by the regulators.

The issue my bank has and probably Misha too is that we are a small community bank that does not sell its loans and even bigger issue is that we don't escrow and don't want to. We have jumbo loans we do now but they will be HPMLs with the current rates we have. We are trying to figure out what we can do rather than just lower the rate since we portfolio 100% and don't want jumbo risk at standard loan pricing. So we figured we could offer the loan amounts in two products which both combined be 80%LTV or less but which would not put us in HPML category. Would we have any issues with the new regs if we were to struture our jumbos in this manner? I am not sure if we would still have the issues of compliance you mentioned. It is all too confusing for my old brain and an upcoming FDIC exam next month!

I tested all my AML APRS that we quote on our rate sheet and they are all considered HPML. We use the National Monthly Median Cost of Funds Ratio for OTS Regulated Institutions with a 3% margin. I took the rate as low as 1% and still HPML, then I took the margin from 3% to 2% and they were fine. Is anyone else having this problem? All of our fixed rates were fine.

I see no problem as long as the home equity loan you referenced is a closed-end home equity and not a HELOC. If you structure them using a HELOC then you would be construed as structuring a closed-end product as an open-end product for the purpose of evading the restrictions of HPMLs.

However, that is my opinion and I urge you to discuss the scenario with your regulatory authority for their opinion.

I'm not getting this scenario...if you lower the loam amount enough to give the standard interest rate (rather than jumbo), but you have to then create a junior lien to get it down low enough to do that...I don't see where you have lowered your risk any, so why not just lower your rates on the jumbo's? Your exposure is the same either way!

RRJ...they could lower the rate on the first lien to avoid the escrow requirements of a HPML. They could charge a higher rate on the closed-end second to offset the adjustment on the first and although it (the 2nd) may hit HPML status they would not be required to escrow because it's a subordinate lien.

I don't see a problem with this, however keep in mind this is new territory and would the examiners consider it to be "structuring" to avoid the HPML limitations. That's why I urge discussion with your regulatory authority. Until the first exam and feedback none of us really knows what to expect, we can only speculate based on our readings and past experiences.

226.35(a)(3) states:
the term ``higher-priced mortgage loan'' does not include a transaction to finance the initial construction of a dwelling, a temporary or ``bridge'' loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to Sec. 226.33, or a home equity line of credit subject to Sec. 226.5b.

I'm stuck on "does not include a transaction to finance the initial construction of a dwelling"....do they mean construction loans that include permanent financing or loans for construction only, where a new vehicle will be put in place to cover the permanent financing?

Where are the instructions for the FFIEC calculator?

http://www.ffiec.gov/ratespread/newcalchelp.aspx

Your construction permanent loan would be for the initial construction of the dwelling, therefore I would opine it would be exempt.

How did I miss that?

Thanks!

Is it possible to have a loan that is a HMPL but it is not a HOEPA loan and visa versa?

Yes. It could be a HOEPA loan because of high fees (credit insurance) and the APR is not high enough to be a HPML. You could have a loan subject to HPML at 1.6% over the APOR which will not be a HOEPA loan.

Im not sure I follow you here. I believe both HPML and HOEPA need to use the APR. Thus I do not see it as possible to have a HOEPA loan that is not a HPML. Can you give me an example?

I realize they both use two different indices’ but both are actually tied (not a perfect regression). The price of treasury securities is in some way correlated to loan interest rates. I bet there is a scenario I just cant fathom it.

Thanks

All fees and charges that are used in the HOEPA calculation are not finance charges that affect the APR therefore you could have an APR that is not over the 1.5/3.5% (for HPML) but the fees and charges could exceed 8/10% (for HOEPA). I agree it would be a rarity but it is possible.

Are you referring to the second trigger: (ii) The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1.

The reason that I usually exclude this scenario is it is very hard for the total of points and fees to exceed the greater of 8% or $400 (usually the 8%). If you are then I agree there are probably scenrios that there could be a HOEPA loan and not HPML, but it would be pretty unlikely.

HOEPA has 2 triggers where HPML only has one. The fees and charges trigger is the one David and I are referring too and you should never automatically exclude that trigger, especially if you still do single premium PMI and/or credit insurance.

As I said earlier I agree it would be a rarity but it is possible.

I think Dan has explained this well, but I'll add to it. I see more HOEPA loans triggered by selling credit/disability insurance then the high APR trigger. This loan will be subject to HOEPA (because of the fees test - or the 2nd trigger, as you stated), but no to HPML.

As I stated in my last post, there will be LOTS of loans that meet the HPML test (because the APR threshold is so low), bu they won't meet the HOEPA APR threshold.

OK I agree. We look for loans that trigger the credit life/ disability test, but everything else is fairly hard to catch befoer loan closing... or it just doesnt trigger the fee. I wonder about the VA funding fee on secondary market loans now. That should often hit the trigger for fees for HOEPA.

Until I thought better about it I thought the insurances increased APR more than they would as a pure % lof loan amount. That is why I was getting hung up with that. My bad.

"Your construction permanent loan would be for the initial construction of the dwelling, therefore I would opine it would be exempt."

Dan you said the above in refernce to CO OFFICER's question....we only do our construction perms as 2x closings, therefore we are thinking our perm portion could fall under HPML qualifying since it is a seperate closing....again, we don't escrow and are looking at lowering rates to not fall into a "Have To" escrow scenario. Am I correct in thinking these 2x closing CPs would have the perm rates not be exempt from HPML inclusion? thanks.

Forgive me if this question is redundant, but most of the focus has been on balloon loans.

For a regular 5/1 ARM that does not have a discounted initial rate but is a HPML - what interest rate is used for qualifying the customer since the rate/payment will change in the first seven years?

If the annual change is capped at 2%, should the initial rate plus 4% (the highest possible rate changes in the fifth and sixth years) be used?

This is the last issue in our implementation of these dreadful changes.

Go with what you know. Don't assume the worst case scenario. Just like the TIL payment stream, use the highest P&I (based on today's index) to determine their repayment ability.

Take this as "my opinion".

A construction/permanent loan is for the purpose of the initial construction and long term financing of the dwelling. IMHO I don't think it matters whether you have a 1 phase or a 2 phase construction/permanent loan. I think both scenarios are for the initial construction of the dwelling and therefore would be exempt.

Again, "my opinion".

Is the 7 year balloon rule applicable to Sec 32 loans as well as HPMLs? I attended a seminar in May that indicates both are subject to the rule but Supervisory Insights only mentions HPMLs.

Thanks

I believe that a Section 32/HOEPA loan would also be a Higher-Priced Mortgage Loan, as the APR that triggers Section 32 status would certainly be high enough to qualify as HPML. Perhaps the fees test could result in a Section 32 loan that is not HPML - I haven't done the math, but it seems like it would be a very rare possibility.

Emily Ann: I addressed this above - there certainly can be loans that are HOEPA that aren't HPML because of the fees test.

To addresses Space Needle: HOEPA requires you to determine the borrower's repayment ability - see §226.34(a)(4). HPML requires the same thing - see §226.35(b)(1).

My apologies...I read through half the thread, got distracted and then jumped to the end. Your explanation was very thorough.

Thanks!

Trying to finish my training materials and want to make sure I will be training the lenders and their staff correctly.

1. If we do not have a HPML/HOEPA, do we still have to go through the documentation of consumer's ability to repay if income is verified verbally with the employer?

2. If no, we would not have to be concerned about the term of the balloon loans, right?

The more I work with this, the more confused I seem to be. I think it must be time to retire.

Goldie -

Reg Z Comment 34(a)(4)(ii)2 states the following: Income and assets--co-applicant. If two persons jointly apply for credit and both list income or assets on the application, the creditor must verify repayment ability with respect to both applicants unless the creditor relies only on the income or assets of one of the applicants in determining repayment ability.

Can someone help me interpret this correctly? Does this mean that repayment ability must be verified collectively for both individuals using their combined income and assets? That's how I'm reading it...however, I could see it being interpreted to mean that repayment ability has to be verified separately for each individual based on their respective income and assets (as if each were applying on their own for credit, meaning both would have to qualify for credit individually).

Thank you so much. I'm so glad its Friday!

Dan, I've been tied up last couple days in meetings...but was catching up....the above statement is throwing me off. I could understand a construction-only loan...but how is a constr/perm loan exempt when you normally think of it in the same light as a "purchase" transaction?

I have read this post twice to make sure I didn't see my question already answered so here goes.

If the loan qualifies as a HPML but the purpose of the loan is not a HMDA reportable purpose (such as debt consolidation or vacation, etc) do we have to report the loan on the HMDA lar?
If yes, this means I have to retrain all of my lenders to start gathering HMDA data at application for loan purposes that I have finally trained them to not gather hmda information.

Am I confused (or more confused than normal)

Has anyone answered this question yet? I didn't see it yet, but may have missed it. We are not going to change our cutoff times. If I am understanding correctly, if we have a written procedure stating that the borrower must submit payments by cutoff times, we would be compliant in not separating out the payments recieved after cutoffs or after hours. We would then need to send notice to existing borrowers and have it noted on new note terms. Am I understanding correctly??
Thanks!

This was a reply question to the below post by pacar....
Poster: pacar
Subject: Re: Regulation Z changes - 10-01-09
____________________________________________
Quick question regarding Crediting of Payments:

Comment for 226.36(c)(2)(3) states in the implied guidelines that a payment can be made any time during normal business hours.

Our Drive Up is open late most nights, and the tellers accept many payments. These would, under today's practices, be credited on the following business day as part of normal posting.

Am I correct in assuming that, unless we specifically state a cutoff time in writing, these payments received after hours should be pulled out so they can be manually backdated to the date of receipt?

How are the rest of you approaching this? And how about payments left in the Night Drop?

I have a question about internet rate boards for loans. Is there some changes as to how you can display rates coming in October and end of year?

We currently show our rates and APR for out loans products. Then have some sample payments listed below. Is this not going to fly come October 1? Will we just have to say, we have loans, call us or see an office?

Our bank has looked into if we have loans that are HPML's. Currently all our ARM products woulbe classified as HPML. We can do the requirements to have presumption of compliance. Managemetn is now questioning if all our loans are considered higher priced, would regulators then come back and considered violations as predatory lenders? We are a small bank rural community so our rates are generally a little higher thang bigger mega banks. Anyone have any thoughts?

If it's not HMDA reportable, it never goes on your LAR.

I posted the same question #1247293 - 09/09/09 01:21 PM. I don't think I ever got a reply. But I'll share my thoughts.

We are a small community s&l with the exact same issue, however are rates are very competative so we know the other community banks in the area must have the same issue since their rates are slightly higher.

I have spoken with my management and we are contemplating changing our underwriting guidelines to underwrite all our RESPA loans as if they are all HPML. This way we don't have to figure out if the loan is or is not a HMPL. We have an internal RESPA taskforce and really don't see a downside of going with a more conservative underwriting policy as this is pretty how we underwrote loans many-many years ago. We are also concerned about being labeled a predatory lender however we know we are not, never have been and never will be.

Has anyone seen any guidance or best practices to prove compliance with the evasion provison for HPML's. We currently do a lot of PLOC's due to the current rate enviromnment. Many of this are 100% funded after the recission period.

"Managemetn is now questioning if all our loans are considered higher priced, would regulators then come back and considered violations as predatory lenders? "

I'm not sure I understand. Violations of the HPML provisions will be just that - violations of Regulation Z. The mere making of HPMLs is not predatory lending.

"we are contemplating changing our underwriting guidelines to underwrite all our RESPA loans as if they are all HPML. This way we don't have to figure out if the loan is or is not a HMPL."

Except for the escrow requirements.

Currently we are advertising that we have no closing costs associated with our HELOC products. I believe that effective October 1 if we continue to advertise no closing costs that becomes a trigger term and requires additional disclosures, can anyone help me clarify this? Also, if it does require additional disclosures for advertising no closing costs, where could I find these at? Thank you.

This is actually already in effect and has been for years. See the OSC to 226.16(d)(1).

16(d) Additional Requirements for Home Equity Plans

1. Trigger terms. Negative as well as affirmative references trigger the requirement for additional information. For example, if a creditor states no annual fee, no points, or we waive closing costs in an advertisement, additional information must be provided. (See comment 16(d)–4 regarding the use of a phrase such as no closing costs. ) Inclusion of a statement such as low fees, however, would not trigger the need to state additional information. References to payment terms include references to the draw period or any repayment period, to the length of the plan, to how the minimum payments are determined and to the timing of such payments.

A const/perm loan is for the initial construction (and long term financing) of the dwelling. Since it is for the initial construction of the dwelling then how is it not exempt?

Okay- I guess I have really been focused on the real estate secured mortgage rates and HPMLs and today I have just realized that our mobile home with no land loans could also be a HPMLs (I did think about the escrow part, just did not connect to the underwriting part- too much in my brain). So we are to use the same APOR tables, right, and everything that goes with the HPMLs? I am slightly paniced right now. Thanks for everyones help in all of these changes.

I am totally confused by this. We don't offer that type of product. Our ARMs are 10-15-20 year term loans that have an interest rate based on an index + a margin. The rates change either every 3 years or every 5 years based on the plan chosen. The rate limitations can vary based on plan - for example one plan has a cap of 16% and another plan has a cap of 2% per rate change. Both have a floor of 6%.

Today the rate would be 6% since prime +1 isn't greater than 6%.
In three years - depending on the plan and the movement of the index, the rate could be 8% or 16%. There isn't an alternative payment stream to choose from on the note.

HELP!

You have 3/3 and 5/5 ARMs with either a 10, 15 or 20 year term.

I assume your floor is 6% therefore you don't have a discounted or a premium rate and that is why you only show one payment stream. You would base your repayment ability on the disclosed "fully indexed rate" at the time of consummation. In this case your floor rate.

So no "gyrations" and recalculations unless we have discounted rates? YEAH - much easier to explain.

Can someone please tell me if the implementation of the HPML requirements affect what is already in affect under HOEPA. In other words, are there particluar loans that are currently subject to HOEPA that after 10/1/09 will no longer be subject to HOEPA (temporary and bridge loans)?

The ammendments did not change any existing HOEPA requirements, just created a new "segment" of loans between 'prime' and 'HOEPA'
AND added some requirements that apply to all Mortgage Loans
&#61607; Lender must provide the Early TIL within 3 business Days of receiving an application
&#61607; Lender can not charge a fee (except for credit report) until after the consumer receives the Early TIL (and GFE as applicable)
&#61607; Lender can not coerce, influence, or encourage an appraiser to misstate a value
&#61607; Making a loan when you know that prohibited conduct occurred
&#61607; Servicers must credit payments on the day they are received
&#61607; Can not “Pyramid” late fees
&#61607; Must provide an accurate payoff statement within a “reasonable” time after requested
&#61607; The advertising requirements
ETC ......

I'm going to have to recant my opinion on the comments from 226.35(a)(3). This is my fault for not first verifying the comments in the pre-amble which states the following:

Construction-only loans. Section
226.35 excludes a construction-only
loan, defined as a loan solely for the
purpose of financing the initial
construction of a dwelling, consistent
with the definition of a ‘‘residential
mortgage transaction’’ in § 226.2(a)(24).
A construction-only loan does not
include the permanent financing that
replaces a construction loan.
Construction-only loans do not appear
to present the same risk of consumer
abuse as other loans the proposal would
cover. The permanent financing, or a
new home-secured loan following
construction, would be covered by
proposed § 226.35 depending on its
APR. Applying § 226.35 to construction only
loans, which generally have higher
interest rates than the permanent
financing, could hinder some borrowers’
access to construction financing without
meaningfully enhancing consumer
protection. . . .

Const/perm loans would not be exempt.

I apologize for any inconvenience my previous answer caused.

It's ok, Dan. Thanks

New questions:
1. If the APR changes after the rate lock date due to the addition of a finance charge fee, I believe you have to recalculate to determine it the loan is now a HPML. Correct? If so, whate APOR date do you use to compare, the first rate lock date or the date where the APR increased due to the new fee? This may be a stupid question, but at this point my head is spinning,

2. We are allowed to use tax returns to verify income. Can we use copies of self-prepared tax returns? I would think that this is contrary to the requirement to have third party verification. How are you handling this?

1. I would say you use your initial info. You aren't change the rate, you are amending a fee.

2. I believe we order directly through the IRS, you may want to check into that service.

Dan...thanks! I'm up to my eyeballs in examiners right now and that const/perm was blowing my mind and I've had no time to follow back up until now!

Iblu - regarding the income verification of tax returns:

We are now using the 4506T document to obtain tax return transcripts (from the IRS) which verify the self prepared or other prepared returns. The transcripts are a line by line summary of the return which can be a great fraud prevention tool in addition to providing the necessary validation. Some lenders are just using the 4506T transcripts and do not even ask for the original returns.

Many companies provide assistance with 4506T transcripts including some major credit providers. If you need more detail, send me a message.
Regards

So, on our ARM's on which we do not offer a discount, just the index plus margin, we can underwrite with that and be compliant, and do not need to figure a possible rate in year seven based on worst case scenario rate increases, and still be considered compliant??

Thanks for your responses. I don't want to create extra steps for our underwriters, but I agree that a copy of the tax return directly from the applicant is unacceptable if the return is self-prepared. I will make sure our procedures include using the 4506T to obtain the transcript.

Again, trying to lessen the workload...would you agree that a copy of the signed tax return is okay if prepared by a third party. Do you agree?

Can someone point me to any training materials for the 10-1-09 changes? I am looking for something for the lenders. They have been keeping up, but I want something that really goes over the 10-1 bullets. Sort of a "these are effective now" because it is so hard to remember what was 7-30, 10-1 or 1-1!!!

I have run across power points posted to BOL occassionally, but I can never find them when I need them. Or, if you have something you are willing to share, that's great too.

***I should know the answer to this question alert***

Are the 10/1 changes for application recieved after 10/1, or closing after 10/1???

JJ, I believe that it applies to applications received after 10-1 and any loan closed after 1-1 (regardless of application date).

Good, that is what I was thinking as well.

Thoughts?? It almost seems to simple that they would allow this

JJ,

I was under the impression you still need to underwrite based on what the rate could be in 7 years. You just assume no change in the index.

Now writing that and reading what I wrote, if there is no discount in rate, and your index doesn't change, then I think what you say is correct.

Also, I have not seen too much discussion on this with the new advertising rules, and like to dicuss what is meant by Clear and Conspicuous.

Generally, we put rate and APR out there, and then in the mouseprint, all of the required disclosures.

Am I reading too much into C&C and thinking that perhaps this will no longer fly and that my terms disclosure might have to be as as large are the rate, and basically, right with the rate going forward??

Thoughts...

Think??

ugh...

Just Jay and DD Regs. If your ARM rate is fully indexed at the time of consummation then you don't have to do any additional computations to see what the rate would be in 7 years.

A fully indexed rate's payment stream at the time of consummation will look like:

### X $$$.

You use the payment shown as it is the highest "scheduled" payment within the first 7 years.

And then, if discounted, you then simply use what a fully indexed rate at consummation would look like for your calcs, and still not worst case scenario, correct?

A discounted rate will (or should if your software is compliant) show the payment streams and when the loan will reach the fully indexed rate taking into account any rate caps at each adjustment. If you take the highest scheduled payment disclosed in the payment streams then you should be compliant.

From pages 44612 and 44613 of the 7/30/08 release.

iv. Variable-rate loan with discount for five
years. A loan in an amount of $100,000 has
a 30-year term. The loan agreement provides
for a fixed interest rate of 7.0 percent for an
initial period of 5 years. Accordingly, the
payment scheduled for the first 5 years is
$665. The agreement provides that, after 5
years, the interest rate will adjust each year
based on a specified index and margin. As of
consummation, the sum of the index value
and margin (the fully-indexed rate) is 8.0
percent. Accordingly, the payment scheduled
for the remaining 25 years is $727. The
creditor will retain the presumption of
compliance if it assesses repayment ability
based on the payment of $727.

v. Variable-rate loan with discount for
seven years. A loan in an amount of $100,000
has a 30-year term. The loan agreement
provides for a fixed interest rate of 7.125
percent for an initial period of 7 years.
Accordingly, the payment scheduled for the
first 7 years is $674. After 7 years, the
agreement provides that the interest rate will
adjust each year based on a specified index
and margin. As of consummation, the sum of
the index value and margin (the fullyindexed
rate) is 8.0 percent. Accordingly, the
payment scheduled for the remaining years is
$725. The creditor will retain the
presumption of compliance if it assesses
repayment ability based on the payment of
$674.

vi. Step-rate loan. A loan in an amount of
$100,000 has a 30-year term. The agreement
provides that the interest rate will be 5
percent for two years, 6 percent for three
years, and 7 percent thereafter. Accordingly,
the payment amounts are $537 for two years,
$597 for three years, and $654 thereafter. To
retain the presumption of compliance, the
creditor must assess repayment ability based
on the payment of $654.

Okay, rehashing the under 7 year balloon restriction. The commentary for 34(a)(4)(iii) states...
"A creditor is presumed to have complied with Sec. 226.34(a)(4) if the creditor follows the three underwriting procedures specified in paragraph 34(a)(4)(iii) for verifying repayment ability, determining the payment obligation, and measuring the relationship of obligations to income. The procedures for verifying repayment ability are required under paragraph 34(a)(4)(ii); the other procedures are not required but, if followed along with the required procedures, create a presumption that the creditor has complied with Sec. 226.34(a)(4)"

So if we decide to continue issuing balloons shorter than 7 years that exceed the HPML and we can demonstrate the borrower has the ability to make the normal payments not the balloon, then we will not be in violation of Reg.Z just increase our liability in a civil suit. Yeah or Nay?

edited to add commentary section and the beginning of the commentary

That's my opinion too FWIW......but I'd like to see an agreement from "the gurus."

Iblu - the fact a tax return is presented and shows a third party name as preparer does not mean it is valid. While I suspect you would not be criticized for not being in HPML compliance if that is what you did, it is a best practice to have the 4506T as a fraud prevention tool.

Swiggles - I am not a GURU but I agree with you. Just my opinion, as a lender if we underwrite to the highest payment level in the first 7 yrs AND can show the borrower can easily afford the highest payment stream, then we should be okay.

Note to regulators: If you don't want us to offer shorter term ARM products or balloons, just come out and tell us!!!!!!!!!! Don't mask it in double talk!

Good Gosh, I wish we had a summary of the conclusions in this thread.

But then I wish I had more time......



and a million bucks!

LOLOL SMQ! Thanks for adding a laugh to this not-so-laughable subject. Ah, what we all could do with a million bucks.....

Bump

Retire!

Sorry, back to business now.

The regulation specifies how the “clear and conspicuous standard” would apply to advertisements for home-equity plans with introductory rates or payments, and to Internet, television, and oral advertisements of home-equity plans. There are specific requirements for the clear and conspicuous standard, such as close proximity and equal prominence. Read the preamble pg 44575 in order to see the intent behind these requirements.

Radio and TV Advertising Disclosures must be made in a speed and volume sufficient for a consumer to hear them and be understood. If the bank prefers, a roll-free telephone number may be announced or displayed for consumers to call for the disclosures in lieu of providing such disclosures in the radio or TV advertisement.

Internet The bank can use a link to accompany a triggering term, which takes the consumer to the additional disclosures. Ads cannot be obscured by graphical displays, shading, coloration or other techniques making them difficult to read.

Q1: This was asked before but I didn't see a response. Can we post payments next day if received after the cut off time?

Q2: I thought that the effective date was for loans closed on or after 10/1 not apps received by 10/1..

Effective date is for applications received on or after Oct 1st.

If you recieve the pmt on or before the due date, you are ok to post after the date of receipt as long as the entry does not result in a late chg, additional int/penalty or reporting of negative info to CRA. You are also allowed to set a reasonable cut off hour for payments.

On the payment posting issue - I am confused on if you have to disclose a "receipt of payment policy" or not. Initially, it sounded like we had to, now, I don't think so.

Here's our situation, we can post a payment right up to end of business. Saturdays, we can't. So we will need to effective date Saturday payments on Monday to Saturday's date, so the customer does not incur any additional interest. Do we need to send any sort of notice re; this? I think not as it is clearly to their benefit.

Thoughts?

The Bankers tool section has a presentation that includes the 10/1/09 changes. http://www.bankersonline.com/tools/lender/newloanrules07-09qcl.html You could eliminate the slides you don't need and add additional information.

I had found this other PPT while doing a search on google.com http://www.fmsboston.org/images/04-28complianceupdate.ppt

Thanks ahou. I think I was confused because on the FDIC Supervisory Insights chart of comparison of HPMLs Vs. HOEPA loans, the title says, 10/1/09 and later originations.

<<-Mental head slap time. I am tired and wrapped up so much in training that I did not even realize it was my power point at first. Sigh...back to explaining HPML.

If this has alread been covered, please forgive me. The HPML rules apply to all consumer purpose, primary residence loans except business purpose, construction, reverse mortgages and bridge loans. Is that right?

I saw some notes that said it did not apply to home purchase, home improvement or refinance, but then I saw something else that said it did. Was this one of those things that was changed after the comment period?

Please set me straight as to where we ended up on this.

For Reg Z, those secured by the consumer's prin dwelling are covered under Higher-Priced mtg loan rules. Does not include temp construction loans, bridge loans with terms of 12 months or less, reverse mtgs and HELOCs.

For rate spread reporting under HMDA, home purch, home improvement & refis are covered.

I have a few more questions we need clarification on.

1. Does a renewal of a single payment obligation with no change in the original terms require new disclosures if done with modification & extension agreements???

2. Is a rate increase considered a change in the original terms thus requiring new disclosures, if done with modification & extension agreements?

3. Current balloon loans that mature. Do rate adjustments require new disclosures? Or only if the rate increases??

4. If new disclosures are required, is the transaction subject to the new REG Z requirements?

There is no change from the past for 1 thru 3. If they were considered refinances before, they are still refinances.

If they are a refinance, then all aspects of Reg. Z will apply to the new loan.

In the supervisory insights it states in regard to a balloon loan that,
"Of course, where the borrower has the right under the mortgage contract to renew the loan beyond the seven years, there is no balloon payment that needs to be considered in determining repayment ability. While this right may be conditional, it is important to note that satisfying the conditions must be within the borrower's control. 17"

It then notes commentary for conditions within a consumer's control in connection with renewable balloon-payment loans.

We are wondering if we can reword our balloon notice addendum to comply with this and then still be able to do our balloon mortgages. To date we have never not renewed a balloon mortgage.

My question would be, is anyone else considering this? and I cannot find the comment that it refers to? It says see Comment 17(c)(1)-(7), but I can't find the right commentary. Are we missing something here?

i found it at
www.fdic.gov/regulations/laws/rules/6500-2300.html

Does anyone see any problems, Fair Lending or otherwise, with this:

1. Offer balloon loans for 1, 2, or 3 years with APR under the HMPL threshold to borrowers that meet our qualification requirements.

2. Use modification agreement when balloon payment is coming due to extend or modify the loan so we don't have a refinance with Reg Z, RESPA, and HMDA then applying to loan.

We just cannot afford to lock-in a balloon payment loan for 7 years.

If you have to lower your current rates and/or fees that you have determined you needed in order to be profitable for 1, 2, 3 and 5 year balloons to avoid HPML status then how can you afford balloons at all at the reduced rates and/or fees?

We can play these games if we want too - but be aware: You write a 1-3-5 at a non-HPML rate and then modify prior to maturity. If you then end up extending the loan at rates above the HPML rates, you can expect either 1) further regulations in this area or 2) the bank being sued under UDAP.

Can we beat this payment credited date horse just a bit more. Yesterday, I listened to the ABA Telephone Briefing regarding the 10-1-09 Reg. Z changes. When the topic came up regarding payments coming into your branch on say, a Saturday, the speaker left no room for crediting those as of the following Monday's business day. I believe he indicated they need to be back-dated and credited as of Saturday, period. He didn't mention any contract language or customer notice/disclosure, etc., etc. that would change your obligation to credit it as of Saturday (or for example, Sunday for banks that have braches in grocery stores, etc.). One of my employees even asked me about Internet payments being made at 11:59p.m. on Sunday evening ....do they need to credited to the loan as of Sunday's date?

So I have been looking at our ARM rates/loans, and the rate is actually just a smidge under the fully indexed rate (usually within an eighth so we get a nice rate like 5.125 vs 5.132, gotta keep the rate sheets pretty).

For sometime now, we actually underwrite at both the rate at consummation 5.125, as well at ay 200 bps over, 7.125.

If they cannot qualify with current income at both points, loan is not a go. Do you think this will continue to be adequate, and therefore not have to show a third qualifer at 5.132?? IMO, this is even more prudent than the required.

Thanks for the replies.

I understand where you're coming from Dan. That's how it was presented to me and thought I would get opinions on the situation.

rlcarey, I agree if the rates at modification are above the HMPL rates, there could be other problems. Thanks for response and opinion a well, that's what I was looking for.

So... if we offer the right under the mortgage contract to renew the loan beyond the seven years, then do we need to worry about the balloon payment for determining repayment ability?

From the Official Staff Interpretations Section 226.36(c)(2) Bankers Online
1. Payment requirements. The servicer may specify reasonable requirements for making payments in writing, such as requiring that payments be accompanied by the account number or payment coupon; setting a cut-off hour for payment to be received, or setting different hours for payment by mail and payments made in person; specifying that only checks or money orders should be sent by mail; specifying that payment is to be made in U.S. dollars; or specifying one particular address for receiving payments, such as a post office box.

I am not sure how the regulators are going to interpret “in writing” but we have signs posted in all of our lobbies that state our cutoff time is 2:00 and items received after 2:00 will be posted on the next business day.

Signs are not "in writing". You need to give them something.

RL - If the following paragraph is added to our Consumer Mortgage Notes is that sufficient? Does this only apply to closed end credit?

Cutoff Time For Receipt of Payments: Payments received after 2:00 PM on any business day that the bank is open will be posted on the next business day.

Queen: I'm not sure how to do the link, but the "renewable balloon loan" is being discussed in the "Reg Z changes Oct 1 & 3-5 yr balloons" thread. Basically, it is thought to be an ARM loan and as such must be tied to an index (if a national bank).

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1252666#Post1252666

Contractual terms should be reviewed by legal counsel.

IMHO - this statement is too broad. You can set different cut-of times for the receipt of different types of payments, but a cut-off time for mailed payments earlier than 5pm would be subject to criticism. You would need more specificity.

bump.

If your contract calls for rounding the rate to the nearest 1/8 - that is the rate - period.

Rereading my post I may be a little vague... I am asking in terms of HMPL underwriting, since a one year ARM at 5.125, APR of 5.608 is a HPML, but the fulling indexed rate is not 5.125, it is just slightly higher.

Since we are also underwriting at 5.125 and 7.125 per policy, do you think it will fly that we would not underwrite at the fully indexed rate since it would fall between the two, and we are already have a more stingent test in place?

If your contract calls for the rounding of the index and margin to the nearest 1/8% - 5.125% is the fully indexed rate.

It doesn't though... it is a slightly discounted rate at consummation.

Then, since you are underwriting at almost 2% above the fully indexed rate you are more than covered. Although, it would cause multiple payment streams on your TIL.

cool....

The higher priced mortgage loan requirements pertain to a "consumer credit transaction." A "Consumer" per the regulation Z definition means "a cardholder or a natural person to whom consumer credit is offered or extended." I think this excludes consumer loans to trusts. But, if the loan to a trust is HMDA reportable, don't we still have to disclose the higher priced mortgage rate spread on the HMDA-LAR? Thank you for your help.

Two questions related to HPML:

1. Other than taxes, insurance, homeowner's dues and cooperative fees, what other expenses should be included in the mortgage-related obligations when figuring a borrower's repayment ability?

Our consumer lending area uses Cypress. The vendor has included additional expenses, such as pool maitenance, lawn care and utitilites in this figure. I can't seem to find anything in the regulation or commentary that requires this. Any thoughts?

2. When calculating the DTI on HPMLs, is it acceptable to use gross income? The commentary indicates that creditors should look to widely accepted governmental and non-governmental underwriting standards, including FHA. We currently use gross, which I think is the industry standard, but Cypress is using net income for the DTI. Does it matter which one is used?

1. In a software demo last week, they included pool maintenance and lawn maintenance (some restrictive covenants require lawn maintenance) and estimated utlilties. Also, don't forget flood insurance when considering the insurance categort.

Ah...you are on the same software as I read your next paragraph! :-)

2. You should be using gross and your cypress software does gross up for non-taxed income. Otherwise you should be entering gross (regular pay-type income)

Look again, unless cypress changed something, it should be looking at gross...as a matter of fact, that may be a function in your administrative ability..perhaps you don't have it set to gross up.

If a loan is not subject to Regulation Z - you don't have an APR to compare to the APOR tables.

In your opinion, are the lawn, pool and flood expenses required by the Regulation, or is Cypress just taking a conservative approach to this?

Thanks for your guidance on the gross income issue. I will check with our administrator to see if this can be changed.

I think it's a stretch to be including pool and lawn expenses in the DTI ratio unless they are required as a part of a mandatory association fee.

If the loan requires flood insurance then there is no question whatsoever that it must be included in the DTI ratio.

Oops, I meant to say lawn, pool and utilities. I would definitely include flood insurance, but what about utilities?

Utilities would not be a "related mortgage expense" as defined by the regulation. However, I have seen utilities used to calculate DTI and it would be a matter of an internal policy whether to include it, if you choose to include it then you should include it for all mortgage loans, not just HPMLs.

Also, if you elect to include other than mandated expenses (which I can see the logic in including givens such as those listed by Cypress), I think you would need to consider that in your max DTI ratio...Most DTI ratio's are not built around these "extras".

If a bank only receives mail once a day and that time of day is earlier than 5:00 PM the changes to Reg Z that go into effect 10-1-09 and 7-1-2010 are going to force us to manually back date all loan payments received via the mail to the previous business day...That's just nuts.

"If a bank only receives mail once a day and that time of day is earlier than 5:00 PM the changes to Reg Z that go into effect 10-1-09 and 7-1-2010 are going to force us to manually back date all loan payments received via the mail to the previous business day..."

Huh - where did you read that?

Federal Register Vol 74 No 18 Thursday January 29, 2009 page 5357.
Dealing with Section 226.10

"The Board notes that if a creditor adopts a 5 p.m. cut-off time for payments received by mail, neither the current rule nor the revised rule would mandate that the creditor pick up its mail at 5 p.m. on the payment due date. Section 10(a) addresses only the date as of which a creditor is required to credit a payment to a consumer's account, but does not impose any requirements as to when the creditor actually must process or post the payment. It would be permissible under the final rule for a creditor that has a 5 p.m. cut-off time on the due date for payments by mail to, for example, backdate and credit payments received in its first pick-up of the following morning as of the due date, assuming that its previous pick-up was not made at or after 5 p.m. on the due date. The Board understands that backdating of payments is relatively common and that some servicers have platforms that provide for automated backdating. A creditor that prefers not to backdate its payments for operational reasons could, however, arrange for a 5 p.m. mail pick-up.

The final rule adopts the 5 p.m. safe harbor only for mailed payments and does not address other payment channels."

226.10 and 226.36 appear to mirror each other as far as prompt crediting of payments. 226.10 is effecive 7-1-2010 and 226.36 is effective 10-1-09.

Is a titled mobile home (no land) subject to the October 1st change?

OK - This is the 10-01-09 thread. Are we discussing open-end credit or closed-end credit. There are some notable differences and the payment guidance in one is not the guidance provided for the other.

Randy - Below is 226.36 effective 10-1-09 Closed end credit payment crediting and 226.10 effective 7-1-10 Open end credit payment crediting. My reading of these 2 sections is that they are basically saying the same thing. If you don't pick the mail up at 5:00PM loan payments in the mail picked up the next morning must be backdated to reflect being made the previous day. I certainly don't see any "notable differences". What am I missing or misreading?

Closed end credit - Sec. 226.36 Prohibited acts or practices in connection with credit secured by a consumer's principal dwelling.
(c) Servicing practices. (1) In connection with a consumer credit transaction secured by a consumer's principal dwelling, no servicer shall--
(i) Fail to credit a payment to the consumer's loan account as of the date of receipt, except when a delay in crediting does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency, or except as provided in paragraph (c)(2) of this section;
Commentary Paragraph226.36(c)(2).
1. Payment requirements. The servicer may specify reasonable requirements for making payments in writing, such as requiring that payments be accompanied by the account number or payment coupon; setting a cut-off hour for payment to be received, or setting different hours for payment by mail and payments made in person; specifying that only checks or money orders should be sent by mail; specifying that payment is to be made in U.S. dollars; or specifying one particular address for receiving payments, such as a post office box. The servicer may be prohibited, however, from requiring payment solely by preauthorized electronic fund transfer. (See section 913 of the Electronic Fund Transfer Act, 15 U.S.C. 1693k.)
2. Payment requirements--limitations. Requirements for making payments must be reasonable; it should not be difficult for most consumers to make conforming payments. For example, it would be reasonable to require a cut-off time of 5 p.m. for receipt of a mailed check at the location specified by the servicer for receipt of such check.
3. Implied guidelines for payments. In the absence of specified requirements for making payments, payments may be made at any location where the servicer conducts business; any time during the servicer's normal business hours; and by cash, money order, draft, or other similar instrument in properly negotiable form, or by electronic fund transfer if the servicer and consumer have so agreed
Open end Credit - Section 226.10—Prompt Crediting of Payments
10(a) General rule .
1. Crediting date. Section 226.10(a) does not require the creditor to post the payment to the consumer's account on a particular date; the creditor is only required to credit the payment as of the date of receipt.
2. Date of receipt. The “date of receipt” is the date that the payment instrument or other means of completing the payment reaches the creditor. For example:
i. Payment by check is received when the creditor gets it, not when the funds are collected.
4. Implied guidelines for payments. In the absence of specified requirements for making payments ( See §226.10(b)):
i. Payments may be made at any location where the creditor conducts business.
ii. Payments may be made any time during the creditor's normal business hours.
iii. Payment may be by cash, money order, draft, or other similar instrument in properly negotiable form, or by electronic fund transfer if the creditor and consumer have so agreed.
Commentary § 226.10 Prompt crediting of payments.
(a) General rule. A creditor shall credit a payment to the consumer's account as of the date of receipt, except when a delay in crediting does not result in a finance or other charge or except as provided in paragraph (b) of this section.
(b) Specific requirements for payments. (1) General rule. A creditor may specify reasonable requirements for payments that enable most consumers to make conforming payments.
(2) Examples of reasonable requirements for payments. Reasonable requirements for making payment may include:
(i) Requiring that payments be accompanied by the account number or payment stub;
(ii) Setting reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person. For example, it would be reasonable for a creditor to set a cut-off time for payments by mail of 5 p.m. on the payment due date at the location specified by the creditor for the receipt of such payments;

What you previous quoted (several posts above) was the preamble to the open-end credit rules. There are no similar statements in the closed-end preamble. While the regulations read approximately the same, the Fed did not do a very good good job of coordinating the discussion in the preambles. While, depending on the processing modes of banks, it may present some issues, I don't think it will impact banks the same across the board.

For example, if you pick up mail at the post office from a PO Box, then you bank may very well be required to pick up at 5:00pm or later. If payments are mailed to a physical branch location or office, payments are received when delivered.

Also, of note is that the open-end rules have a specific section that deals with requirements when payment due dates are established for days in which the bank is not open for business. The open-end rules will require posting of payments regardless of whether the bank is open. Every bank should be reviewing their open-end statements to ensure that due dates are pushed to the next business day the bank is open to eliminate that processing nightmare. There is no similar requirement in the closed-end rules.

I am really not trying to be argumentative and all these issues need a good thrashing. I think many banks are making this a lot harder than it has to be. I think each bank needs to determine how they can best comply. I don't think that the intent was for banks to turn their normal payment processing on end. It is just trying to prevent banks from holding payments to generate additional fees and interest charges.

"I am really not trying to be argumentative and all these issues need a good thrashing. I think many banks are making this a lot harder than it has to be. I think each bank needs to determine how they can best comply. I don't think that the intent was for banks to turn their normal payment processing on end. It is just trying to prevent banks from holding payments to generate additional fees and interest charges."

Randy, I'm not trying to be argumentative either just trying to understand and get my arms around the concepts required to comply with these changes and thought from your posts that I was misunderstanding something here.

I believe Reg CC sets very good guidelines for posting of deposits and establishing cutoff times and consumers understand how the system works. If the regulators wanted to establish cutoff times for the loan side why not mirror what is already required on the deposit side since that is probably how most bank's do business now and get rid of this if you don't pick mail up at 5:00 you have to back date payments idea.

IMHO - If you don't pickup mail, I don't believe the regulation requires that you do. In fact, you most likely would not be able too. As far as treating payments made at locations when you have a mid-afternoon cut-off, as long as that is disclosed in writing to the customer, i.e. via payment coupons, in the contract, through a separate mailing, etc., I don't believe a bank has to change the way they process in person payment either. It is going to be a while before the regulators get their hands around this issue also. As long as the bank establishes "reasonable" requirements, I'm not sure you are going to see much criticism in this area.

What are the new triggers in HOEPA?

(I need the HOEPA for Dummies version)
Thanks!

for 2010?


$579

There is a new category of loans called higher priced mortgage loans (HPMLs) that is a step below a HOEPA loan. The 10/1/09 Reg. Z changes added some requirements for HOEPA loans and added the new HPML category.

You might want to go back to the beginning of this thread and read through it. You might also want to read this FDIC article. http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum09/examiners_desk.html

Take a look at this information from the FRB. http://www.federalreserve.gov/newsevents/press/bcreg/20080714a.htm

I'm trying to understand how to use the adjustable rate table to determine APOR. If a loan is adjustable during the term, it is variable to WSJ Prime and there's no initial fixed rate schedule. Which term should I use in the APOR adjustable rate table? Thanks

The period to the first adjustment.

The rate at consummation is fixed ("initial fixed rate schedule) until the scheduled rate change date whether that be one day, one month, one year, 3 years, etc. Any term less than 1 year would be input as 1 year.

The help section of the calculator will give you some good information on how to use it.

Please excuse me if this has already been asked.

1. If I have a HPML, am I prohibited from making a loan where the DTI exceeds the bank set ratio?

2. If the loan is not HPML, do I still have to consider the DTI and am I probited from making that loan?

Thanks

There is no regulatory acceptable DTI ratio.

Thanks, got that. My question really focuses on whether or not there is a regulatory requirement for denial.

So in order to verify a persons employment do we need a written statement from the employer? Or anything? Thanks

The Commentary to 226.34 under verification of repayment ability gives you some guidance on what some of the documents are that are acceptable verification.

IMO - Having a current pay stub or last years W-2 is a document sufficient to meet the " 3rd party verification ". I think we just have some duty to be duly diligent to feel conficent the document provided is not counterfeit or bogus or doctored.

I read a summary of the new regulations and it said that HOEPA loans could not charge prepayment penalties regardless of time. I am having trouble finding this in the regulation. Does anyone else see this?

HOEPA does allow prepayment penalties, but there are several restrictions. Refer to §226.32(d).

Should the highest payment in those 7 years show up on the early TIL?

Thanks for the response...Someone on my staff says that they read somewhere (they can't remember where) that we will have to provide a GFE within 3 business days for HIL and Refinances as well now? Thanks again

edit* I was thinking that was coming with the new RESPA changes on 1/01/10.

The requirement to provide early discosures came with the changes effective through MDIA on 7/30/09. The only exceptions are HELOCs or time shares.

Figured out no it doesn't on the ETIL.
Ready to get out the whiskey bottle and drink up!

Today's rules (as well as the new RESPA rules on 1/1/10) require a GFE for all consumer purpose loans secured by a 1-4 family dwelling, lien on dirt . . . Therefore, you would need a GFE for HIL, Refinances, etc.

We've been discussing the subjects of underwriting and denials of HPMLs as asked by SoccerMomQueen above. Doesn't this return to the analysis of repayment ability issue? If we can't show repayment ability in our DTI ratios then are other compensating factors enough? Are we back to the whole presumption of compliance issue...and just how significant is that? That's where we are on this issue right now.

For those that use Arta Lending: It seems we will be ok - if you sign up for the compliance function for both HPMLS and HOEPA included within the ARTA lending program it is free of charge. This feauture automatically checks the current APOR rate table to determine if the loan in process is subject to the HPML or HEOPA additional requirements. Also, the loan system does show the 7 year high payment when you are creating the ETIL- just not sure it's coming out correctly yet. But are emailing ARTA to figure it out.

How do we verify assets? Are the applicant's statements on a PFS or a Loan Application sufficient? I'm assuming we don't need to go appraise vehicles, other properties, jewelry, guns, (this is Wyoming), etc.

You are required to get 3rd party verification on . . . Whatever you are relying on for repayment ability

If the repayment is coming from : Cashing in some 401k or Mutual Funds; or from selling a rent house; etc. You would need 3rd party verification of those assets you are depending on for 'ability to repay'.

Has anyone come up with a worksheet or something that they are using to document how they verified repayment ability?

Just wondered what everyone was doing for this.

Thanks Mitch. For some reason my brain wasn't considering items other than actual income to repay. Makes perfect sense now. Your advice was useful BTW

Queen Mum, I am working on a checklist right now, but it includes more than repayment ability. I'd love to have someone check it out. Could you please pm me your e-mail?

Deb

I was wondering the same thing.

Does anyone have an advertising checklist that includes the Oct. 1 changes on it?

Does anyone want to develop forms and train my people for me? I swear I met myself in the hallway a little earlier. I feel like I'm going in circles.

I have this sign that I think I need to dig out and put on my desk:

I'm Lost
I've gone to look for Myself.
If I should return before I get back,
Please ask me to wait!!

I've created an HPML worksheet that walks the lender thru step by step. I've sent it to Michele to have it added to the Banker's Tools section. Hopefully you will find it useful.

I have to prepare Audit Committee Reports, but will work on an Advertising checklist as soon as that's finished. Maybe one of you will beat me to it!

We had our training this past Tuesday...while in the midst of a 3-week S&S exam...it went well...we'll see how it goes once it's implemented!

I am new to these threads. I have read through this thread and have been unable to find help with this, so I apologize if it has already been asked. Can someone please explain how to use the FFIEC rate spread site in order to determine if you are going to have a higher priced mortgage loan? I know that there are fixed rate and variable rate APOR tables, and there is also a rate spread calculator that you will begin using for applications taken on or after October 1. I need to be able to explain to our employees how to determine if they have a higher priced mortgage loan by using the APR on the preliminary TIL. Thanks for your help!

The P ETIL will be a good early tool to see if you have a potential HPML but keep in mind you have to use the "final" (when the rate is last set) APR.

The calculator actually has a pretty decent help section. Just click on the help link.

If the APR is within the threshold (1.5/3.5) the result will show NA. If it is outside the threshold then it will show the spread as 1.62 or whatever the figure happens to be. So as long as the result comes back as NA you would not have a HPML.

Thank you for your help Dan!

Walden,

Thanks for your willingness to share!!!!!!!

Has it been added yet? I did not see in Bankers Tools.

Michele was sending it to Andy for review before adding it. I did find 1 "oops" after I sent it in.

Ok, I'm freaking out a little bit. Just when I thought we were doing OK on getting the new Reg Z changes implemented, I read the letter to the Fed, FHA, GNMA, etc. regarding interest charged at payoff being considered a prepayment penalty.

http://www.aba.com/aba/documents/news/FHAloans92509.pdf

Why did this letter come out one week before the implementation date? This has serious implications.

So is everyone going to stop offering higher-priced FHA loans as of Thursday?

We have a meeting at 2:00 p.m. to discuss. We are checking with MBA to learn more about their interpretation (which differs from ours). If the industry indeed interprets this interest as a prepayment penalty, then yes, we will halt any higher priced loans on Thursday until the issue is resolved.

I just check on a recent FHA loan that we made - It was for only $90,000 and the APR was only .53 higher than the interest rate on the note. (of course larger loan would have less of an increase in the apr).

As of today the 30Yr APOR is 5.09 and we locked an FHA loan on the secondary market today at 5.125 with no points. So the APR should be somewhere around 5.5 or 5.6 and that is below the HPML threshold of 6.59 { APOR 5.09 plus 1.5 }

What would have to be included / happen to push your FHA loans into the HPML territory ??, other than a small loan amount.

The FRB has issued a Consumer Affairs letter dated 9/21/09 that transmits revised Reg. Z exam procedures that incorporate the 10/1/09 changes.

Here's a link to the letter.
http://www.federalreserve.gov/boarddocs/caletters/2009/0909/caltr0909.htm

Here's a link to the 77 page exam procedures document.
http://www.federalreserve.gov/boarddocs/caletters/2009/0909/09-9_attachment.pdf

Does anyone have a link to the under lying rate tables?

http://www.ffiec.gov/ratespread/newcalc.aspx

Well duh, I saw the calculators and not the tables. Thanks,

I had this question come up at the bank so I thought I would ask it here.

We have a workout loan that was done previously as a balloon and it will come due next year. The loan is paying as agreed. When it comes due next year and we calcluate their ability to repay based on these new procedures (the current rate would be considered a HPML), what options do we have if they do not meet our DTI calculations?

Thanks,

Joe,
I asked a similar question earlier - and was told that you can't renew as a HPML is there is no ability to pay. Options were to lower rate or foreclose (assuming you can't just have them refinance elsewhere)

I ditto that good question from Joeball!

1. Regarding Temp Financing, at maturity, (12 months), can we extend the loan and have it still be out of the range of HPML? I certainly understand that structing loans to look like temp financing could be an issue, but in the cases of a house not selling, or other reasons for which it was temp in the first place did not come to fruition, can we extend a temp loan and still be exempt from HPML rules?

2. REgarding third party verification of assets relied upon when determining repayment ability, can our Credit Administration Office, (prepares docs, evaluations, orders appraisals, reviews appraisals, is independent of the lending area), prepare evaluations for third party verification purposes?

Thanks,

Deb

We also have some workouts that we are not ready to foreclose yet. You can extend or modify --- no new note! Not a new note, HPML does not apply.

Not to be a way around the rules, just don't want to be a 1 strike and you're out. I really don't think congress was planning on us foreclosing on existing loans if we could get them worked out. Need to set some guidelines in your policy, this is temporary.

I disagree you can't "renew". If you don't refinance the loan, it's not subject to Reg Z disclosures. I think this is "legally" circumventing. It may also not be looked kindly on by examiners, but is legal.

But what constitutes a renew versus a refinance??? You wouldn't be able to change the rate, right?? And our system assigns a new loan number so that would be a refinance, right?

David:
ok, refinance vs renew issue here. My understanding is "renew" is very narrowly defined by regulators. Our FDIC regulators seem to look at 226.20 and say that it is a renewal only if it falls within the 5 renewal examples given in 226.20. So the classic example of renewing a 5 year note for another 5 years would be treated as a refinance not a renewal.

I have a question that I am not sure has been addressed. When evaluating for a higher priced mortgage loan, if the borrower qualifies for the initial payment amount, but does not qualify for the highest payment they could have over the initial seven year period, I assume that you would have to send an adverse action letter turning them down for debt to income ratio. Does this sound correct?

And what about my post on extend or modify, agree or disagree?

I'm still interested in the answers to my questions above, but in the meantime, another has come up. Regarding servicing and posting payments as soon as they are received, you may drop a loan payment at the drive thru on Saturday, but our Mortgage Department is not open. Do our tellers need to indicate the date the payment was received by the bank, so the mtg dept can back date the payment on Monday, or does the fact that our mortgage department was not open on that date make that unnecessary? I can't find any reference to this in the reg or commentary.

Thanks,

Deb

Sorry, but never mind on the payment question. I found a thread in the 85 page 'other' reg z post.

Queen & Burgess:
Renewal vs. refinance is a legal issue. §226.20(a) states a refinance is a new obligation that satisfies/replaces/extinguishes a previous loan. (BTW, HMDA and RESPA say the same thing). If the "new" loan doesn't do this, it's not a refinancing (although there are a few exceptions).

Burgess: Your examiners are clearly in the wrong here. Those 5 things in Reg Z say "even if it is replaced, it's still not a refinancing".

We've discussed this issue several times here at BOL.

Ok, i have a situation that i am concerned about.

I attended a seminar where one of the speakers provided a solution to doing balloon loans. Many of the small banks in my area are considering or have made the decision, based on the speakers' recommendation that the following would be in compliance, to go with the stated solution:


In the FED box of the note state, example: We are NOT required to refinance this loan, however, if a decision is made to refinance this loan, the rate will not exceed 9.0% during the first 7 years.

for example: a 3 year balloon, amortized over 180 months. Calculate the balloon, take the balloon and use the highest rate as stated in the note (9.0%), in this example - recalcuate using the remaining amortization schedule. (balloon amount x 9.% / 144)= it is understood that this would be the highest P&I payment.

My arguement - using the statement we are NOT...means we are stating we may not refinance the loan and in that case, the highest P&I payment would be the balloon. so, to me the balloon is just not possible.

Management at my bank also agrees with me - but i want to make sure we are not missing the opportunity to continue balloon loans less than 7 years.

I agree, unless the conditions for refinancing the loan is totally under the control of the borrower, this is just a balloon loan - period.

I hope the speaker was an attorney and if he put this recommendation in writing, that he has plenty of errors and omissions insurance.

Tax Returns - we have never used the 4506T's and may start to as it seems the easiest way to verify for self employed - How long does it take to get the report once it is requested? Is there a cost involved?

Also, please tell me I'm right - the 10/01/09 chenges Do NOT apply to a second home just the primary.

Thanks for the response - no, he isn't an attorney - he is well known and I am really surprised that he stuck his neck out there for this.

[quote=Jerseygirl]Tax Returns - we have never used the 4506T's and may start to as it seems the easiest way to verify for self employed - How long does it take to get the report once it is requested? Is there a cost involved? We order ours through Informative Research. $17/joint report 24-48 hr turnaround time.

DAvid, I'm not following the conversation with you and Burgess...please help clarify this for me. Within the exceptions to "refinancing" in .20(a), the first one (not considering #2-reduction in rate/payment) refers to single pay loans...if the 5-year loan was not a single pay...then I would think it would be a refinance, not a "renewal".

(1) A renewal of a single payment obligation with no change in the original terms.

I did not notice that this questioned had been answered. Can anyone help?

That would fit in the category of inability to pay unless you have other mitigating factors, so in and of itself, I would say you...you would decline the request.

What changes are you all making to the loan rates listed on your websites in order to accomodate the changes effective Thursday?

Thankfully (at least so far) we don't list APR's on our website, or print ads, for that matter.

How will we disclose a payment stream on a construction loan that is interest only payments, based on the amount advanced? We will have 11 interest only payments followed by the final balloon payment in month 12. Our TIL states Interest on the amount of credit outstanding during the construction period will be paid monthly, followed by 1 $300,000.00 payment on specified date.

I have a question regarding calculating repayment ability for an ARM Loan. If I have an ARM loan that is fixed for five years and I am calculating repayment ability do I use the payment amount or the maximum amount the payment can be repriced to?

KYbanker - you would look to the highest payment given in the payment stream in the Fed Box for the first 84 months.

I have a question about the whole renewal/refinance issue- all the above posts have really confused me. Due to all the changes to Reg Z we are looking at changing how we handle balloon loans when they mature. We currently take a new app, give new disclosures, new note, etc- just like a new loan thus making all the changes applicable. We are currently looking to start doing modifications for those loans for change to rate, payment amount and maturity date - not a new obligation. I have read 226.20 and the commentary and am even more confused.

So I guess my question is - if we modify the terms and do not get a new note then we do not have to redisclose and all the waiting periods and HPML issues would go away on these loans? I really did think I understood all of it, but now I have no idea.

Walden, what every happened to your HPML checklist. I REALLY could use it NOW!!! Andy, Michele....HELP!

Marie R, I hear you!! I just keep finding questions that relate to this fun. We do modifications and extensions at the end of our balloons. Thought I understood it, too, but I'm as confused as you are. Maybe someone will clarify it for us.

I'm finding no one who advertises rates on their websites! This is strange to me, it's an absolute in our market. I just don't know what to change.

I logged into BOL to ask a question about renewing loans that mature and how the Higher Priced Mortgage Loan requirements apply. I happened across the post above from MarieR which is sort of my question. For mortgage loans that are maturing, if the bank modifies, amends prior to maturity, do the MDIA requirements apply? And, can the bank renew on substantially the same terms or would a balloon loan for example now qualify as a Higher Priced mortgage loan requiring the bank to reevaluate collateral, collect paystubs, tax returns, etc?

drewella, if you do a modification and do not have a new note, HPML does not apply. We are only doing this for our workout loans so as not to appear to be circumventing the regs.

We advertise rates on our website. However, to access them, the consumer must go through our mortgage rate calculator. Our marketing department is trying to argue that this is "direct personal contact" under Reg. Z and is, thus, not an advertisement. I'm not buying it. In all likelihood I'm going to have the calculator taken down until we can disclose an entire payment stream for our adjustable rate mortgages.

The other issue we have is that we have a mortgage rate sheet that our lenders pass out for inquires. This seems more like a "direct personal contact", but we have always treated it as an advertisement. I will probably pull the plug on this as well.

I sure wish I could come up with the Federal Register when "direct personal contact" was added to the Commentary. I'd love to read the discussion. Can anyone point me in the right direction?

PQ - If you are advertising rates for variable rate loans you have to include the rate at adjustment (based on today's index and margin) and all the payment streams (basically, it is going to look like the payment section of the TIL). Oh yes, it is ugly...very ugly.

"Direct personal contacts, such as follow-up letters, cost estimates for individual consumers, or oral or written communication relating to the negotiation of a specific transaction."

A website calculator does not rise to the level of negotiating a specific transaction nor is a rate sheet that you pass out for inquiries.

I don't think you need anymore of a definition than found above in the commentary to make that determination.

If you only include the composite APR on discounted variable rate products, you don't have to disclose info about the discount period, (pmt stream, duration of the initial term, correct?

If we have a borrower who is self-employed, and the loan is a HPML, do we have to verify the information on the tax returns by getting the tax transcripts, or can we just use the tax returns?

I would love it if this was true. However, doesn't the commentary to 226.24(c) and 226.24 (f) rule it out?

(4) i. A creditor or seller may promote the availability of the initial rate reduction in such transactions by advertising the reduced simple annual rate, provided the advertisement shows with equal prominence and in close proximity the limited term to which the reduced rate applies and the annual percentage rate that will apply after the term of the initial rate reduction expires. See § 226.24(f).

Feel free to correct me if I'm misunderstanding (I've misunderstood a lot lately) .

We've decided that if they were done by a paid preparer, that was fine. If they were self-prepared, we'd obtain a IRS copy via form 4506.

That's where I went with it, but I'm not getting much support. I think it makes sense to verify the amounts to prove that the tax returns that we have is the same as what was submitted to the IRS.

LT, we just had a buy back in the last 60 days because borrower provided tax returns that didn't match what was actually filed. A couple secondary market lenders are requiring 4560T on ALL files so that's where we went too. We get it from our cbr and it costs less than $20 on a joint return.

I finally got around to updating my advertising checklists with the new requirements effective tomorrow - better late than never

If anyone is interested in using them, I'm happy to share, but I'm new to BOL and don't know how to get things posted. Can someone show me the ropes?

YEAH! Email it to Michele Petry mpetry@bankersonline.com and she can help you with it.

So what do you do if you calculate their DTI ratio when figuring their "ability to pay" and it is higher than the acceptable ratio based on our underwriting standards?

I can't find anything on it...

I believe there was a post earlier here that said you must deny the loan.

My question: Are you using the ETIL APR or the FINAL TIL APR to calculate if a loan is HPML? I'm thinking both. Anyone?

Ok, laugh but I can't find this answer....a term shorter than 7 years...so is that 73 months? 6 years + 1 month? or 84 months? or 85 months?

We are using 85 months as the balloon date to circumvent any question.

As far as exceeding your DTI...it mentions "using generally accepted qualification standards" or something close...and as you are probably aware, even the secondary market standards vary.

We will not autodecline at our DTI limit...but will build in mitigating factors such as adequate residuals, cash assets, etc as possible remedies.

Does the down payment fall in the category of verification of assets relied upon for the repayment of the loan?

Good question, we just talked about this today but didn't really finalize our thoughts.

We've added an 85 month balloon note, too. Adjustable rate with one rate change in 42 months--2 percent cap--external index. Does anyone see any issues with doing this?

The calculator on FFIEC website asks for Lock In Date. We only change our rates maybe twice a year. We currently do not have the customer sign any kind of "lock" agreement. Does this mean we have to use the date we close the loan?

What this section is saying is (my paraphrase) "even if you refinance the loan (with a new loan), you don't have to give new TIL disclosures." This, of course is applying only to single pay loans with not other changes.

IMO - The key in to be consistant. Just as what date has been used previously as the "lock date" for the HMDA Rate Spread Calculator.

We use the date on our "Loan Approval Sheet" - This is what shows the loan terms, including the rate; collat; etc. and is signed (by the lender or committee) and dated. For us that is when the bank is commiting to do the loan at X% Rate.

I think using the note date could be reasonable - there is a prior post by Dan Persfull indicating that they don't lock any rate and it could change during processing if their "Stated Rate" for that product changes, so for his institution the note date makes sense.

Exactly my point. I don't believe the previous question on this was referring to a single pay...I believe it was referring to a 5-yr balloon...perhaps I misinterpreted it...I just didn't want someone thinking they could "renew" a 3-5 etc amortizing balloon loan under the exceptions to refinancings.

OK - let me try again RR. If you read all of §226.20, it states a refinancing is when you replace a loan with a new loan. The 5 exceptions state even if you do replace a loan with a new loan, they still don't trigger new disclosures.

The key on checking the rate spread is that you have to use the Final APR, correct? So if you check the rate spread today and you are under 1.5%, but the APR changes 1/8 a week later, you go check it again and the Average Prime Offer rate has changed and it could become a HPML. Am I on the right track with this?

That was my question earlier, Stephanie. imo, the final APR is THE APR that the Reg is talking about using to determine the HPML. So yes, if it changes from the one shown on the ETIL, you have to recalculate to make sure the loan isn't HPML. If I'm wrong, I'm sure a guru will chime in.

I agree TR!

I agree that you use the final APR, however, the rate spread will be based on the date that you locked the rate. But I could be wrong again.

This is close to what I said but not exact. What I said is we don't automatically lock the rate at the time of approval as it appears you do. We give the applicant the choice of locking the rate or letting it float.




Here's an explantion I gave another poster in a PM.

When you use the calculator to determine the rate spread you use the APR disclosed at consummation and use the date that you set (locked) the simple interest rate. From the Commentary to 226.35:

3. Rate set. A transaction's annual percentage rate is compared to the average prime offer rate as of the date the transaction's interest rate is set (or "locked") before consummation. Sometimes a creditor sets the interest rate initially and then re-sets it at a different level before consummation. The creditor should use the last date the interest rate is set before consummation.

You can't use the "initial" APR (for final determination of HPML status) because due to additional fees and/or charges the APR can change at consummation but the simple interest rate will not change. The APR determines whether you have a HPML, not the simple interest rate.

Again, I lock the rate at 5% and the APR is 5.12% and I run a test on the rate spread and I'm within the 1.5% so I don't have a HPML.

On 10/21 when I'm ready to close and due to some changes in the process I have added additional fees and charges to the loan that affects the APR. So the APR now goes to 5.14% and this time when I do the rate spread calculation the .02 difference is within the MDIA tolerance where I don't have to redisclose but it is enough to cause the APR to hit the 1.5% threshold. So now I have a HPML. IOWs the 5.12% APR had a rate spread of 1.48% (below the threshold) but the 5.14% APR had a rate spread of 1.5% (equals or exceeds the threshold).


Now with that said, there would be one way around it but I'm not sure how the exminers are going to look at these loans in their first examinations after these rules go into effect.

If the ETIL is within tolerance you do not have to provide a "final" TIL. So if your APR does not exceed the .125 or .250 tolerance then you don't have to provide the "final" TIL, but if you do provide a final TIL then, IMO, you will have to use the APR dislcosed on that TIL for your HPML comparison.

I have a question about the prompt credit of payments (EFFECTIVE TODAY!!!!!) Eeek!!

Our mainframe system can be set to credit a borrower's payment to the loan effective as of the due date, regardless of when the payment is actually physically credited. My IT Department stated that other banks that use the same system we use will be using this as their method of compliance. The regulation allows for the credit of a payment on a day other than the day it was received if the borrower will not be charged a fee or reported negatively to a CRA. For example:

• The borrower's payment due date is the 10th.
  
• The borrower's payment is received on the 15th, but when it's posted, it automatically posts effective the 10th....no penalty, no fee no negative report.
  
• The same borrower's next payment is received on the 5th, but when it's posted, it automatically posts effective the 10th....this method creates a negative interest figure that will be used up during the next five days.

In theory, this would work. Anyone?

Dan, do you regularly do final TILs? I'd love to use your the method you outlined above but we always have both an ETIL and a final TIL in the file. If we were to suddenly stop doing that, I'm afraid it would flag the examiners and make an issue of it. What do you think?

Is this a covered loan under the new sections?
A loan is made to John, Jr. (the borrower) but the loan is secured by the principal dwelling belonging to John, Sr. (not a borrower). I know the rule says "secured by a consumer's principal dwelling" and I believe it is covered, but want to confirm.

TR, we always provide a final TIL and we have no intention of changing our procedures. HPMLs and HOEPA loans don't bother us. They are legal and we properly disclose them, so no big deal for us. We haven't had a HOEPA loan in over 2 years, we will have HPMLs with our in house loans and some of our second mortgage products, but again no big deal for us.

Runreb....Sr is not a consumer for the purposes of extending credit under Reg. Z therefore the loan is not secured by a "consumer's dwelling". Sr is a consumer however for the purposes of rescission. See 226.2 for the definition of a consumer.

Ditto. And the only loans we make that have EVER been subject to HOEPA are those loans for which the borrower wishes to purchase credit life and disability insurance. We have number of those every year because a loan secured by someone's principal dwelling is an easy sell for credit insurance.

That's what I was thinking too Dan, but just needed to hear it straight from you. We always do final tils and will continue to do so. Because we're running 4506T on all loans and have been doing 3rd party verifications forever, if one changed at the Final Til stage, we'd just have to make sure it was escrowing, which is nbd.

Glad to hear you're not afraid of having HPMLs either. I was beginning to wonder if I should be so that's why I asked.

Can I use my own bank's statements to verify income? For example Social Security etc.?

In order to verify income, can I use a tax return provided to me by the borrower or do I have to obtain independent verfiication of what was filed from the IRS?

One more thing, if I have a borrower that wants to purchase a new home and renovate it to be their new primary residence ... as long as the term is 12 months or less than HPML does not apply. Correct?

This is NOT a construction loan as the dwelling already exists. This is a purchase loan.

It must be a 3rd party prepared income verification. This could be a tax return prepared by an accountant, a pay stub or income verification from the employer. I don't believe a tax return, prepared by the borrower, will suffice.

But the term is less than 12 months!

HPML does not apply to Construction-only loans (for initial construction), Bridge Loans or other temporary loans with a term of 12 months or less, Home Equity Lines of Credit or Reverse Mortgages.

First, this is not a construction loan. "Construction" means "initial". This home is already built, so it is a purchase.

HPML does not apply to "other temporary financing with a term of 12 months or less. How is this loan temporary financing. There's a difference between "short-term" financing and "temporary financing". For instance, 2 phase financing to remodel my home. The first phase would not be subject to HPML requirements.

If you loan will be replaced by a 2nd loan of a much longer term, I would agree your loan is not subject to the HPML requirements, but you haven't mentioned this.

I would like to bring this back to life: if the verbaige in the FED box was changed to read:
At maturity the rate will not exceed 2% over the current rate or exceed 9.0% during the first 7 years.

This does not state we will or will not renew the loan - it simply puts a cap on the highest possible rate during the first seven years.

Would this work?

I don't think so. First, you can't put anything IN the Fed box unless it is allowed by 226.17. Second, the TIL disclosure is not legally binding. It is a disclosure - not a legal obligation. Third, I don't think this gets you out of the HPML requirements anyway.

I know this is off the subject of 5 vs. 7 year balloons, but could someone give me their opinion...For the section of Reg Z that came into place on October 1, 2009, Higher Priced loans, etc, is that based on App date or funding date of October 1?

I'm some what new to compliance and I'm beginning to think i've been thrown into a shark tank!!

It is the application date.

andyugooney - You have been.

love the goonies too.

David - thanks - been arguing this for weeks.

I have a question regarding higher priced loans with purchasing a condominium unit. I know the final rule provides an exception for condos. The borrower pays a monthly fee to the association that includes, maintenance, insuance, property taxes, etc. As a lender, are we required to escrow for the property taxes? The borrower does not actuall pay the taxes, the association does.

You can only escrow for bills you can actually pay. If the association fee includes taxes, than the association is paying the taxes and you don't escrow for them. I must say that including taxes in the association fee is a new one for me, tho. Usually that the one thing the borrower does have to pay and we escrow for.

I agree with Truffle Royale. I have never seen a condo unit where the association paid taxes on the unit. The association pays taxes on the common area.

The only exception I can envision would be where the association owned the unit itself.

Yes, kinda odd, as each unit could be valued and taxed differently. I would have your borrower get some clarifiaction, or speak directly to the HOA management to get clariy on that point. As Sinatra pointed out, generally the only property taxes the HOA collects and pays for are for the common areas.

Also, be sure to inlcude the HOA dues as well into your payment calculations, as failure to pay could put their ownership interest in jeapordy.

Here's something that I just read the other day in the Official Staff Commentary on Section 226.34(a)(4) Repayment ability. I think I'm reading it right, but I hope not.

OSC on 226.34(a)(4)6. Income, assets, and employment. Any current or reasonably expected assets or income may be considered by the creditor, except the collateral itself.

If I'm understanding that last clause correctly, on a primary residence, 2-family dwelling, we would be prohibited from considering any rent income from the second unit. If that's correct, I see limited potential for HPMLs on 2-4 family dwellings.

How do the rest of you read that clause?

To me that means you can't rely on the value/sale of the collateral for repayment of the loan. I think the rental income can be considered.

If a customer owns a house free and clear, and gets a loan secured by the home, wouldn't the bank add 1.5% to the APR to determine if the loan was HPML?

If a customer owns a house (primary dwelling) free and clear, and gets a loan secured by the home, wouldn't the bank add 1.5% to the APR to determine if the loan was HPML?

No. The 1.5% would be added to the applicable APOR.

For simplicity and error reduction, use the calculator.

http://www.ffiec.gov/ratespread/newcalc.aspx

Ditto.

Dan, Sorry, I did mean add the 1.5% to the APOR. Just needed to clarify that a first is a first. A lender is saying that on a primary residence owned free and clear you would treat it as a subordinate lien and add 3.5% to the APOR.

You are correct. HMPL is about lien position, not the title of the product.

Does anyone have any language they would be willing to share that they've used to notify their customers of the cut-off times for payments? How did you accomplish this? Separate letter, Statement message, etc.

Ha....I wish I had the answer.....still struggling with it. To me, the regulation pretty much infers that if a customer hands a payment to anyone at any branch while that branch is open for business, the payment has to be credited as of that day. There's really no requirement to notify the customer. I don't see what purpose notification would serve. If you make your "cut-off" earlier than when your facility closes and a customer brings in a payment after that time, what leg does the bank have to stand on???? The regulation says to credit as of the "date of receipt"....no definition provided. We're thinking we might just not charge late fees on loans secured by the borrower's principal residence. But what about a report to a CRA? We're a big bank. Asking after hours and saturday tellers to somehow monitor this will NOT work.

Does everyone at your bank cut over midday?

Do you leave a new accounts drawer open for the day? Could you just run the payments through that perhaps?

You know, I can understand not allowing a midday or early cut off time; but not allowing a 4:00 or 5:00 cutoff is beyond comprehension.

We do a cutoff with our drive-ins when we close our lobbies and all transactions are next day. Doing this allows the bank to process, balance and transmit to Fed in a timely manner while still serving the needs of customers. It's rules like this that make you just want to close the doors, shut the drive-in and say too bad, come when it is convenient for us!

Sorry -- rant over.

I'm not sure where folks are getting that we can't establish cut-off times. The OSC specifically allows reasonable cut-off times. The 5:00 p.m. cut-off that was deemed reasonable was for mailed payments. I think you can have an earlier cut-off for payments made over the counter - as long as it's still reasonable.

Paragraph 36(c)(2).

1. Payment requirements. The servicer may specify reasonable requirements for making payments in writing, such as requiring that payments be accompanied by the account number or payment coupon; setting a cut-off hour for payment to be received, or setting different hours for payment by mail and payments made in person; specifying that only checks or money orders should be sent by mail; specifying that payment is to be made in U.S. dollars; or specifying one particular address for receiving payments, such as a post office box. The servicer may be prohibited, however, from requiring payment solely by preauthorized electronic fund transfer. (See section 913 of the Electronic Fund Transfer Act, 15 U.S.C. 1693k.)

And who's to say what's reasonable? The examiner most likely!! Why can't they provide something more concrete? Our cut-off time for deposits is at 3PM. Is that reasonable? And so if a customer's drop-dead 10th day to avoid a late charge is on a Saturday and he/she brings in the payment to a branch that is open on Saturday, that customer is going to expect the payment to be credited as of that day.

Refer back to this thread....

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1253213#Post1253213

Has anyone had concerns raised by lenders of private client customers? If you have a customer with a $1 million loan who has over $3 million in verifiable assets, etc. and you want to do a balloon loan less than 7 years how are you handling that if it is a HPML? My understanding is that repayment would have to be based on the balloon payment and we would not have the presumption of compliance. Is that correct? If the customer has the means to repay the balloon, is that something to be concerned about? Someone also mentioned to me that there could be fair lending concerns since we would be offering a product that not everyone would qualify for. Appreciate your thoughts.

As long as the home's value is not part of the 3 mil, and you can show that you have taken the steps to verify and show that they in fact do have assets at time of consummation to satisfy the balloon payment, then you should be fine.

Keep in mind too, escrow. These types of clients often do not want an escrow account, but there are no outs here, nor can they buy their way out of an escrow.

So presumption of compliance is not a factor? Also, just to clarify for me - if we originate a HPML loan but escrow isn't required until 4/2010, we wouldn't have to go back and set up escrow would we?

No you would not have to go back and set up escrow for those loans made between 10/1/09 and 3/31/10.

Quick question (sorry if this is has been asked before):

To test if the loan is a high priced mortgage loan (HPML), is the new rate spread calculator adequate to make that determination? If the calculator produces a response (number) other than 'NA', does that mean we have an HMPL?

Thanks.

You are correct.

*rant warning*
With regard to the calculator, I've had so many calls asking where the answer comes up. Why the heck couldn't the government put that in bigger font and maybe red when it's actually numbers, not just NA?!!!

ok, rant over.

Thanks for the quick response David.

I agree TR. Nonetheless, I'm just appreciateive that they are providing a calculator to begin with, but since they are, it would be nice if they provided the result in a "clear and conspicuous" manner. (Pleae note that in no other forum, conversation etc, would I ever use the words "clear and conspicuous". Just seemed appropriate to use here.)

Other quick question on the excemptions of HOEPA loans and HPML's.

Am I clear with my understanding here:

HOEPA mortgage rules do not apply to "residential mortgage transactions" which are loans for the purchase or construction of a consumer's principle dwelling...

While HPML's do apply to loans for the purchase of a consumer's principle dwelling but not for the initial construction of a dwelling?

Are the HPML exemptions meant to exclude what HMDA excludes?

Thanks!

I apologize if this question has already been asked, and I need a response fairly quickly as I have a Loan Department that wants to make a loan. I know we cannot do a balloon loan if the loan will be a higher priced mortgage loan, but what if you run the rate spread calculator for a balloon loan and the loan will not be a higher priced mortgage loan (answer = NA). Can we still do a balloon loan in that instance? I have been under the impression that we can no longer do balloon loans for consumer primary residence loans, but it seems like we could do one if it is not a higher priced mortgage loan.

I agree with you.

There is no prohibition against doing either HPMLs or balloons. You just want to fulfill the criteria to meet Presupmtion of Compliance.

The thrust of HPMLs is recognizing that the loan you're doing actually is a Higher Priced Mortgage Loan. Then you must confirm the repayment ability in DTI ratios; get third party verifications of whatever is relied on for the repayment ability; and HPMLs must escrow.

I've said it before and I'll say it again here, I just don't understand the pox that's being put on HPMLs. Historically speaking, all banks have been doing them. imho, this part of the Reg basically just wants us to recognize them and properly document why we felt they were ok to make.

I could be oversimplifying this so I hope someone will pull me up short if I am.

If it is not a HPML (or a HOEPA loan), you can have a balloon of < 7 years as the repayment ability and presumption of compliance requirements are not triggered.

Must we do all the analysis (as required by the new law) on any short term loan under 7 years or only on those short term loans that are considered “higher-priced mortgages” as determined by the rate spread?

Only HPML and HOEPA loans.

The scenario is the loan is tested and is found not to be a HPML. Loan comes up for renewal - do we need to test? My understanding is that a renewal or modification would not be subject to the rules however it was mentioned to me today that we probably should test. I'm not sure I see the benefit of that but it was mentioned that there are concerns about loans going through several renewal cycles and that the rules were trying to prevent that. Is there a concern I'm not seeing here? Thank you.

As a HPML, a ballon loan can be for exactly seven years, correct? For instance, it doesn't have to be seven years and a day.

I agree.

If you replace the loan with a new note (refinance), it is subject to all Reg Z requirements. If you renew it (don't replace), it is not subject to HPML (or other Reg Z requirements.).

Truff . . . I think the reason some bankers have been put into a tizzy on this is because even if you decide to keep doing balloon loans, for anything less than seven years you must include that balloon payment in your repayment ability. So, in order to show repayment ability, they're having to go out to seven year balloons to be in compliance, which not many banks do at this point. Just my opinion.

Property is a principal dwelling titled to an LLC. Loan purpose is consumer purpose, but the loan will be in the name of an LLC. I don't think HPML applies because section 226.3(a)(2)excludes an extension of credit to other than a natural person.

Am I right?

Yes.

Any input on this one? I was just asked the same thing - technically, it's not 3rd party documentation to just print our own screens, but logically, if we have that info, why bother the customer to provide additional documentation when we can see the automatic deposit there on the account history whether it be something like social security or employer, etc.?

For SS and retirement benefits I would think the electronic deposit would be sufficient since the benefit checks are deposited by a 3rd party. However, for "emloyment" deposits, how do you know the guy hasn't been laid off since the date of the last deposit?

Okay - that makes sense - except you also won't know that information from a W2, tax return, or paystub either, but you are allowed to use that as your verification document. Again, though, even in terms of assets - can a printing of the bank's records be sufficient even though that is not 3rd party documentation (i.e. screen print of CDs and Savings accounts, etc.)?

We are allowing staff to use print outs for government benefits but not for standard salary. The amount deposited into the account is net and we base debt to income ratios off gross income. Also, with a joint deposit account it does not state who's income is coming in. We want a paystub or something showing the income belongs to our borrower.

I have one a little better than currently proven income.

Scenario: Initial construction - exempt. Run the disclosures for the permanent loan...oh nice...right now, it's HPML....will it still be 12 months from now? What happens if the borrower is laid off in the interim., or rates increase and although he qualifies DTI today...not so much in 12 months...the possibilities are frightening...

The only saving grace I can see at that point would be a "workout"?

We require the 2 most recent pay stubs in addition to W2s and/or tax returns. If we have some knowledge the company is gong through layoffs we will also verify current employment through the employer. One of the advantages of being a community bank in a mid-size community.

I personally do not see the examiners not allowing you to use your own records for verification purposes of assets such as account balances.

However, for income purpose you have to show a reasonable continuation of the income and I don't think bank statements of previous deposits would meet the 3rd party requirement for that, but that is just my opinion.

BTW, how do you "third party" verify an employee's ability to repay?

We continue to use direct deposit (on current statements) in some instances...we also gross up the income 120%.

Joker ~

I'd been wondering about the 'gross up' factor. Are we allowed to rely on a grossed up figure if that is not the amount that was 'verified'?

Sorry if this is a redundant question.

Just to be clear, we do not need to test whether a mortgage is a HOEPA mortgage or an HPML mortgage if the dwelling securing the loan is not the borrower's primary dwelling, correct?

If correct, than a loan to purchase a vacation home would not need to go through these tests, correct?

Furthermore, in this same scenario, we would now need to provide an early TIL whereas before, we did not, correct?

Thanks.

Clarification needed....for section 226.35 (HPML) is a covered loan one in which the application is 'dated' or 'received' October 1, 2009 or after? I heard both in recent seminars. Once instructed that the rules applied to any loan where the application is 'dated' 10/1/09 and the other stated that is applied to any loan where the application was 'received' after 10/1/09. I have an application dated 9/28/09 but was noted as received on 10/2/09 so I'm confused if the new HPML rules apply to this loan.

Under the commentary 226.1, 1(d)Organization, it clarifies this. It is for applications received on or after 10-1-09.

To be clear, if we wish to make a fixed-rate balloon loan that is a HPML, we will need to make it for at least 84 regular payments (7x12) and one final balloon payment at the 85th month to maintain the presumption of compliance. Is this correct?

<<<If correct, than a loan to purchase a vacation home would not need to go through these tests, correct? yes, so long as it is not also secured by the borrower's primary dwelling. >>>


I thought they just changed this so that second/vacation homes are now covered.

It is easy to get confused because these are all layered, or intertwined = RESPA / MDIA part of Reg Z / and HPML part of Reg Z.

MDIA (early disclosures, redisclosure, waiting period to close) does apply to all residences owned by the borrower, as long as RESPA applies & Reg Z applies.
But HPML only applies to primary residence.

No, you can have the balloon due as the 84th payment.




That was changed for the disclosure requirements of 226.19(a) that the MDIA requirements amended. HPML and HOEPA only apply to consumer purpose loans secured by the consumer's primary dwelling.

Thanks Tigg-let and Mitch for your responses.

Dan, to touch on Compliance Poster's question about "presumption of compliance", not only can we have the balloon due as the 84th payment, but we can actually can have a balloon loan structured less than seven years (say balloon due as the 60th payment) so long as we can show that we've included the balloon payment (when termed less than 7 years) in our analysis of their repayment ability and we can support that they can make the payment (in the rare case that they have the cash flow to make the significantly larger balloon payment or where the balloon payment isn't significantly higher than the regular payment)? Am I understanding this correctly?

Thanks.

not Dan, Glutes, but yes.

For the record, however, we have our loans ballooon on the 85th month, just so as not to create any techincal problems.

Grossing up is more of a fair lending-type issue so as not to unintentially discrimate against those that have SSI benefits, or similar non-taxable income.

If your DTI are set up for gross, this becomes a pretty important factor. If your DTI limit is set up for net, then you work that accordingly.

In some ways, grossing up is more accurate because everyone does their withholdings differently. By grossing up a certain percentage, you treat everyone more equally. Also, if you claim 8 dependents and only have 1...how accurate is that net income, really?

Okay, thanks!

I had posed the following in a thread in the Marketing forum last Friday and did not get any responses. I thought I would repost it in this thread since it is more active.

"If you have an ad for credit secured by a dwelling and it includes triggering terms that require disclosure of the terms of repayment required by section 226.24(d)(2) of Regulation Z it seems you must also make the payment disclosures required by section 226.24(f)(3). How do these differ? Can anyone give me an example? Thanks."

Thanks for the repsonse joker.

Does anyone have an advertising checklist they are willing to share with changes eff.10/01/09?

Thanks.

I just want to bounce something off the group to make sure I'm telling my loan officers the right information. If they're doing a baloon payment loan for more than 7 years, and it comes up as an HPML, they CAN do the loan presuming they do the income verification, they do the repayment analysis based on the highest scheduled payment in the first seven years of the loan and they escrow if the loan is originated after April 1, 2010. I think there might have been a misconception that even if it was an HPML, that if it was over the 7 years then the regulation didn't apply. I told them that an HPML is an HPML is an HPML!!!!!

Just one tweek, Doug

I don't know if this has already been answered in this post somewhere but...

When are payments left in the night drop assumed to have been received? For example, when the night drop is checked on Monday am, are the payments assumed to have been received on Saturday, Sunday or Monday?


36(c) Servicing practices.
Paragraph 36(c)(1)(i).
1. Crediting of payments. Under § 226.36(c)(1)(i), a mortgage servicer must credit a payment to a consumer's loan account as of the date of receipt. This does not require that a mortgage servicer post the payment to the consumer's loan account on a particular date; the servicer is only required to credit the payment as of the date of receipt. Accordingly, a servicer that receives a payment on or before its due date (or within any grace period), and does not enter the payment on its books or in its system until after the payment's due date (or expiration of any grace period), does not violate this rule as long as the entry does not result in the imposition of a late charge, additional interest, or similar penalty to the consumer, or in the reporting of negative information to a consumer reporting agency.

We assume during that payments made during non-business hours defaults to the next business day, when we are physically in receipt of it.

So, we have an applicant who will retire within the next 5 years. After retirement, his debt to income ratio will be so severly affected that he would not qualify based on the mortgage payment. How do we state his reason for denial? I'm just a little fearful of treading into new waters.

Do you use the standard denial notice form? There is a check box on there for "Income insufficient for amount of credit requested".

I just didn't know if we needed to be more specific that it is his future income that's insufficent. Am I making this too complicated?

Quick question. You know he will retire in the next 5 years (i.e. he said so), or you anticipate he will retire in the next five years (i.e. he will be 65 so we assume so)?

He actually stated that he planned to retire within the next 5 years and he supplied his retirement income...

I would proceed then as SMQ suggested.

Anybody seen this guidance paper issued by the Fed? Would've been nice a couple of months ago so all of us Compliance folks wouldn't have egg on our face.

http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm

This is being discussed throughly in a different thread in the lender's forum.

We are a small community bank regulated by FDIC and senior management has decided that in some circumstances they will allow balloons less than the 7 years.

Being a compliance officer I kept reiterating that if we do that we will lose the "presumption of compliance". It seemed like that was a risk they are willing to take.

I don't know how to verify the ability to repay these shorter balloons. Do we not take into account the balloon balance at maturity or just use the regular monthly payment amount as if we would renew/refinance at maturity?

I have one HPML now (5 yr balloon) that I need immediate guidance on. This is the first HPML we have had, not to mention it being less than the 7-year.

Any suggestions/guidance would be greatly appreciated.

Here's a thread on this topic. It has a link to the Fed's recent guidance, in case you missed it.

I wanted to see what other banks are doing when a balloon note comes up for renewal, and you are unable to verify their repayment ability. We had an issue like this and our customer has been us paying on time (as well as all of their other credits), however, we can not prove their ability to repay the renewed debit due to a high debt to income ratio.
Any suggestions....

Renew the loan in a manner that you don't trigger a refinance (226.20) and then there are no new disclosures and HPML is taken out of the picture.

^^^^^ And you won't have to report on HMDA either!

As far as figuring repayment ability for HPML loans....if we have a co-signer, are we supposed to verify their repayment ability as well? Also, what about giving the Credit Score disclosure to the co-signer? Required?

If the co-signer does not live in the home, then it would seem 226.35 wouldn't apply to them, but what would be the point of having them on the loan if they don't have the ability to repay?

Regarding the credit score disclosure, if you obtain a credit score on a consumer in connection with a consumer purpose loan secured by 1-4 family real estate, you need to provide them with the disclosure.

Is there a disclosure we have to provied to the customer if their mortgage loan is a high price mortgage loan?

We keep going back and forth over this, it would be great to have any help!
Thanks!

You don't have to give the customer any disclosure if the loan is a HPML.

This may have been answered elsewhere, if so, sorry for the duplicate question.

In a bridge loan scenario where a borrower will use proceeds of loan to purchase a home where the loan will be paid off by the proceeds from the sale of the borrowers existing home, what are the HPML or HOEPA considerations?

Bridge loans are exempt by HMDA but it is still subject to TIL correct?

Also, since this will be a purchase loan, then HOEPA wouldn't be triggered because HOEPA doesn't apply to a residential mortgage transaction correct?

Any other thoughts about something I'm missing with this loan scenario and how the new TIL changes may impact it?

Thanks.

Bridge loans are subject to TIL, but they are not subject to HPML. HOEPA does not apply to Residential Mortgage Transactions (a purchase of a primary dwelling).

David, could you please print the name and title of the person at HUD who gave you the transfer tax answer you posted a few pages back? Thank you.

Jay, you said you weren't allowing borrowers to choose anything. Does that go for surveyors on other things I've seen listed in Block 6 too? Makes sense to me just need to double check I'm getting you right on this.

[quote=Truffle Royale] [font:Comic Sans MS]David, could you please print the name and title of the person at HUD who gave you the transfer tax answer you posted a few pages back? Thank you. /quote]
David L. Friend, Esq.
Office of RESPA and Interstate Land Sales
Department of Housing and Urban Development
David.L.Friend@hud.gov
202-402-2093

I am writing in reference to the below Q&A from the GURU section on 1/11/10

Question: When we are doing a modification to a five year balloon, do we have to take into consideration the repayment ability for Higher Priced Mortgages?


Answer: No, if you are not refinancing the loan, it is not subject to the HPML requirements. Refer to §226.20(a).

First published on BankersOnline.com 1/11/10


Like many community banks, we had for many years “renewed” maturing balloon loans with a new note but referenced it as a renewal loan. In preparation for the October 1 effective date of the rules for HPML loans, I prepared a consumer note Modification Agreement and had it reviewed by counsel. I believed that 226.20(a) gave us this ability. We had good procedures and even prepared a renewal form that demonstrated the lender was actually reviewing the borrowers current DTI, LTV, and other important factors including credit for any negative changes as part of their underwriting. I believed that this procedures more closely followed the original agreement with our borrowers in which we agreed to amortize for a certain period but modify the rate and term every 1, 2,or 3 years.

When our outside Audit firm came to do Loan Compliance, they explained that we could not do these modifications as they had been assured by FDIC that regulators would look on these modifications the same way they would look on refinancing into open end HELOCs; as a way to avoid compliance with this new regulation. We were urged to discontinue the practice of preparing modifications and to go to an adjustable product with a term greater than 7 years to stay in compliance with HPML.

I then structured several Adjustable Rate products to meet the needs of our maturing 1,2,and 3 year balloons; Not a popular product with our lenders or our borrowers.

This was a long way around to ask if you have further information from regulators that would assure us they will not look on the modifications as a means of avoiding compliance?

Your outside audit firm is absolutely wrong. Many banks do this and it's perfectly within the regulation to do so. It's it circumvention? Sure. Is it illegal? Absolutely not.

I've never heard of any banks receiving any type of criticism for using what Congress and the FRB set up in the regulations.

Was not sure where to put this questions-RESPA or Reg Z (HPML).

Our loan officers determine a HPML at loan approval with the APR in effect at that time and again re-verifying at consummation with the final APR.

If loan is not a HPML, we would not require an escrow account and this would be reflected on the GFE as “NO we do not require an escrow account for your loan”, however, at consummation a loan is determined to be a HPML now requiring escrow. Am I correct that this should not affect the GFE ? Am I comparing apples to oranges?

OK, point me in the right direction if this has been addressed.

Proving repayment ability for self-employed persons. As far as we can tell, the easiest way to confirm income would be the tax return. However, you then have to be able to determine what is business expense; what is actual personal income, etc. Has anyone found a way to do this that simplifies it at all? Would taking the deposits for the year that are from income and netting out expenses be just as acceptable? What are some of you doing for these cases?

Here's another question that I know was partially addressed earlier in this thread, but still not sure if the "waiting period" applies.

For someone who is NOT a borrower, but has recission rights to the the property, as I undertand it, they would not need to get an early TIL, but must be given material disclosures (final TIL). I do not think the waiting periods would apply, is that correct?

All persons entitled to the ROR must receive a copy of the ETIL. See 226.17(d).

The waiting period does not expire until all parties entitled to receive the disclosure receives them.

This is exactly what I'm dealing with right now? Any direction from anyone on this one???

Was not sure where to put this questions-RESPA or Reg Z (HPML).

Our loan officers determine a HPML at loan approval with the APR in effect at that time and again re-verifying at consummation with the final APR.

If loan is not a HPML, we would not require an escrow account and this would be reflected on the GFE as “NO we do not require an escrow account for your loan”, however, at consummation a loan is determined to be a HPML now requiring escrow. Am I correct that this should not affect the GFE ? Am I comparing apples to oranges?


Was this ever answered? My biggest question i guess is: what if your loan should have been set up with escrows, but wasn't? How, if possible, is this corrected?

David, I recently listened to your webinar on 2/24/10 on lessons learned in completing GFE's & HUD 1, etc. I learned a lot, but please tell me where the fee for odering tax certificates shoud go on both the GFE and the HUD stmt.

Thank you!!

I would think you would want to be monitoring your loans before it get to closing to determine if it is going to be a HPML.

You would know when and if you need to ESCROW by your testing. If it is determined the loan will be a HPML and need ESCROW, that is a changed circumstance under which you can issue a revised GFE changing only those items related to the changed circumstance.

The GURUS can correct me if I have this wrong.

Dan, I've understood this differently and want to take a minute to clarify. We always prepare a FTIL and therefore have not delivered an ETIL to all parties in a RoR transactions (based on previous discussions regarding same). Are you saying you must, regardless, even tho the FTIL will be the actual material disclosure?

On a regular transaction, if you have a changed circumstance and redisclose the GFE, but the APR does not change by more than .125% above or below the disclosed APR, we don't have to redisclose the TIL. right????

The borrower requested an additional $3,000 so our "Finance Charge" figure is off from the original by $1300...but the APR is in tolerance. Do we have to redisclose the TIL?? In the past wasn't there a dollar limit on the difference in the "Finance Charge".

Here's how I read the regs:

The APR is considered accurate if it does not vary from the initial disclosure by more than .125% on a fixed rate mortgage and .25% on an ARM. An exception to this is provided for when the APR varies by more than the accepted tolerances.

When the APR exceeds the accepted tolerances, it is also considered accurate if

a) the actual APR results from the disclosed finance charge; and

b) the finance charge is accurate. The finance charge is considered accurate if the actual amount is not higher than $100 from what was originally disclosed or if the actual amount is less than what was originally disclosed (overdisclosed).

To be safe, if you are resdisclosing the GFE, you might as well redisclose the TIL since resdisclosure of the GFE will delay the consummation anyway because of the timing requirements.

I have not confirmed the accuracy of my interpretation with anyone yet and would like to hear from others who are more experienced with this issue.

myahn, my understanding is that a revised GFE does not delay closing, whereas a revised TIL does. I believe that you can give a revised GFE at the closing table and as long as the APR is within tolerance (or overdisclosed), you can proceed with the closing.

"To be safe, if you are resdisclosing the GFE, you might as well redisclose the TIL since resdisclosure of the GFE will delay the consummation anyway because of the timing requirements."

How does re-issuing a GFE delay consummation? My understanding has been that we could re-issue a GFE at closing, wait as long as it takes the ink to dry, and close the loan (assuming we have a changed circumstance of course, like the customer asks for more money).

I agree. No delay between GFE and closing.

Thanks for bringing me out of my state of confusion regarding the GFE. That's going to sink in.

I'd like to learn from those of you who do not redisclose when the APR is overstated. Our most frustrating scenario involves seller paid closing costs at the 11th hour. Some of our investors require redisclosure even when the APR is overstated. In one such instance, the disclosed finance charge was $37 lower than the actual charge. The timing delay caused a lock expiration which triggered lock extension fees and another round of negotiations. Not a consumer friendly consequence.

I've reviewed the regs until nearly blind and would like to hear your thoughts on whether I can rely on my understanding stated in my earlier post and repeated below:

The APR is considered accurate if it does not vary from the initial disclosure by more than .125% on a fixed rate mortgage and .25% on an ARM. An exception to this is provided for when the APR varies by more than the accepted tolerances.

When the APR exceeds the accepted tolerances, it is also considered accurate if

a) the actual APR results from the disclosed finance charge; and

b) the finance charge is accurate. The finance charge is considered accurate if the actual amount is not higher than $100 from what was originally disclosed or if the actual amount is less than what was originally disclosed (overdisclosed).

I think the test is "regular vs irregular" payments not "fixed rate vs ARM".

myahn, I think you are on the right track, however, the issue is with the investors. You need to work something out with them, maybe even their compliance person.

If it helps, we are in the same situation with investors still holding to that idea of final documents that are totally accurate. They are going to have to live through a few scenarios such as yours to see that they may need to start accepting the valid TIL even if the numbers are off but within tolerance.

For loans subject to HPML and are in a flood zone requiring flood insurance prior to closing, are we obligated to escrow flood insurance also?

yes.

Thank you!

Really should clarify that...they have to BE HPML loans before you are obligated...not just subject to HPML, but i think that's what you meant.

Thank you for the clarification.

The APOR table shows rates to "2" decimal places. Our platform software calculates the APR to "3". We price to avoid having HPMLs. So, for example, the max rate for a 10 year fixed rate loan today would be 7.02% for a first lien. Our software calculation shows the acutal APR to be 7.024. Does the same tolerance of 1/8% apply to this section?

On an HPML to purchase mobile home (which is primary collateral) would you have to escrow on non-borrower principal dwelling (1st lien, site built) taken as additional collateral?

No. A non-borrower doesn't meet Reg Z's definition of a consumer.

Thank you!

Anyone using ARTA,

I'm a little behind on these HPML's. You had mentioned ARTA having the 7 year high payment field. We also use ARTA, however that field always shows the same payment as of consumation. We offer a 5 yr balloon and 1 yr ARMS? Does this field work correctly for you, in determining the highest payment for DTI on HPML's?

I have a HPML and both applicants are paid on a cash basis so W2 shows minimal income, but their deposit relationship is with us so i have verification of cash deposits into the account. Will this satisfy income verification. We want to do the loan and are satisfied with this, but is is ok under HPML?

Would not their tax returns show the additional cash income that is not reflected on the W2?

We have our first subordinate mortgage loan that is a HPML. Am i correct that i need to follow all the rules as if it were a first mortgage except the escrow requirement?